How the credit works, depends on the time frame:
First half of 2021
Eligible employers can claim a refundable credit against the employer share of Social Security tax equal to 70 percent of a full-time employee’s qualified wages paid–including certain health plan expenses–from January 1 through June 30, 2021. The maximum ERC amount available is $7,000 per employee per quarter or $14,000 for eligible wages paid in the first half of 2021.
That component is available to companies that experienced a full or partial suspension of operations as a result of government mandates, or those that can show at least a 20 percent reduction in quarterly gross receipts in 2021, compared with the same quarter in 2019.
Second-half of 2021
The new law allows businesses to claim the refundable credit against the employer share of employment taxes (including Medicare), equal to as much as $7,000 per full-time employee per quarter during the last half of the year. So, including the existing provisions, business owners this year would qualify for up to $28,000 per employee.
The same eligibility rules apply in the last two quarters of 2021: Your company must have experienced a full or partial shutdown or at least a 20 percent drop in quarterly gross receipts in 2021.
Full year, 2020
Employers can also qualify for a look-back to 2020 to access an additional credit per full-time employee. The measure was authorized under the Consolidated Appropriations Act (CAA), which also allowed ERC recipients to apply for a Paycheck Protection Program loan, although employers can’t claim the ERC on expenses paid with forgiven PPP funds.
To access the 2020 credit, which spans March 12, 2020 through January 1, 2021, eligible companies must show a more than 50 percent decline in quarterly gross receipts, compared with the same quarter in 2019. The credit is 50 percent of qualified wages paid, up to $10,000 per employee in 2020. The maximum credit available is $5,000 per employee.
How to file for the benefit
PPP recipients can file amended tax returns to claim the ERC for 2020 and/or claim an ERC in their 2021 tax filing. Also, unlike the PPP, which is designed for small businesses, a company’s head count doesn’t affect eligibility for the credit.
This article simplifies a complex Act as understood by Time Data Systems, Inc. It is not to be taken as legal advice or tax advice. For more information about the Employee Retention Credit please refer to the Internal Revenue Service here and here on the IRS website.