No one willingly leaves money on the table—or at least we’d like to think that it’s the case. You have other priorities vying for your attention, but there are thousands of dollars at stake for your business for each employee that you employed in 2020 and 2021. Although all employers can benefit from the program, special emphasis was placed on helping small businesses. Those with less than 100 workers in 2020 or less than 500 workers in 2021 more easily qualify for funds than larger businesses.
If you’re not certain that employee retention credits (ERC) were taken for every quarter that your business or nonprofit qualified for them, take the time now to understand the program and begin the process of capturing all the funds available to help your business survive and grow.
What is the Employee Retention Credit?
In March 2020, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law to provide relief to employers that were being negatively impacted by COVID-19. The 335-page document covers a lot of ground but within Section 2301, employee retention credits were established to aid businesses that were subject to closure or otherwise impacted financially due to the pandemic.
The CARES Act initially set up ERC for the 2020 calendar year, then subsequent legislative acts modified and extended ERC into 2021. These refundable credits were available to be captured within your quarterly Form 941 returns, however, if they weren’t taken, amended returns can be filed for a limited time.
How Much is the Employee Retention Credit?
Employers are allowed to take employee retention credits for up to $5,000 per employee per year for 2020 and up to $7,000 per quarter for 2021. Determining the exact amount of the credit for qualified businesses takes some effort and is calculated differently for 2021 than it was for 2020.
The ERC program ended for most businesses at the end of the third quarter in 2021 on September 30, 2021. Recovery startup businesses are the exception. They may claim ERC for wages paid through December 31, 2021.
How is the ERC calculated?
- The credit is limited to $5,000 for the whole year for each employee.
- The amount of the credit is 50% of the first $10,000 of qualified wages.
- For employers with less than 100 employees, the credit is allowed for all employees during the qualifying period.
- For employers with more than 100 employees, only wages that were paid for the time the employees were not working are included during the qualifying period.
- The credit increased significantly to $7,000 for each quarter for each employee.
- The amount of the credit is 70% of the first $10,000 of qualified wages during the quarter.
- The employee limit was increased from 100 employees to 500 employees.
- For employers with less than 500 employees, the credit is allowed for all employees during the qualifying period.
- For employers with more than 500 employees, only wages that were paid for the time the employees were not working are included during the qualifying period.
Does your Business or Nonprofit Qualify for ERC Credits?
There are two primary ways to qualify for ERC and they vary by year. Exceptions exist for those who did not have employees in 2019, who started their business after February 15, 2020, and for certain government entities.
- The organization was required to shut down—either fully or partially—due to a government order due to COVID-19 in any quarter OR
- They incurred a significant decline in gross receipts in any quarter compared to the same—or an adjacent—quarter in 2019.
Nonprofits may qualify for ERC if they were impacted by lockdown or quarantine requirements. And as with most IRS and government regulations, what seems simple, can get complex very quickly. Two quick examples: 1) the definition of “decline in gross receipts” changes depending on the coverage year and 2) companies may interpret the point where the headcount is taken differently.
If you’re confident that your business has captured all the Employee Retention Credits that it is entitled to, we applaud you. If you have some doubt about whether you’ve received all the benefits of the ERC that your organization is entitled to (or you know you haven’t), please reach out to a BKM Sowan Horan professional to help you take advantage of this opportunity before its availability ends.