The Employee Retention Credit (ERC) was originally created by the CARES Act in March 2020 to encourage businesses to keep employees on their payroll. The ERC program was then amended and extended in March 2021 to apply to more employers. Here are four things to know about ERCs:
- Eligibility. There are two tests for eligibility — a partial or total government-ordered shutdown, or the applicable decline in gross receipts. The decline in gross receipts test is based on a “significant” decline in gross receipts in quarters of 2020 (more than 50%) and 2021 (more than 20%) compared with the same quarters in 2019.
- Amount. The updated Employee Retention Credit provides a refundable credit of up to $5,000 for each full-time equivalent employee you retained from March 13, 2020 to December 31, 2020, and up to $14,000 for each retained employee from January 1, 2021 to June 30, 2021.
- Immediate Cash Benefit. The ERC is a tax credit, meaning it provides you an immediate cash benefit. This cash benefit may be realized via either (a) a reduction of payroll taxes due to the IRS or, (b) if your credit exceeds payroll taxes, then you may request a direct refund from the IRS.
- PPP and the ERC. The law was amended and expanded in 2021, among other things, to allow employers that received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages not treated as payroll costs in obtaining forgiveness of the PPP loan. In other words, you cannot double-dip on the same payroll, but you may receive credits even though you received PPP funds in 2020 and/or 2021.
If you have not yet investigated whether you may be eligible for ERCs, then you are potentially missing out on a great opportunity to infuse cash into your business. Contact Fournier Legal Services if you are interested in learning more about whether you may be eligible for the ERCs.
For assistance with any legal matters related to your business or estate planning, contact Fournier Legal Services at firstname.lastname@example.org or 860.670.3535 now for a consultation and planning session.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.