As a result of legislation from December of 2020 and recent notice by the IRS, there are new rules for eligibility of the Employee Retention Credit (ERC)
- Credit is available to all businesses in operation during January 1, 2021 through January 1, 2022 IF:
- A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
- A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% (20% or greater decline) of the gross receipts in the same calendar quarter in 2019
- Refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages paid to employees after December 31, 2020, through June 30, 2021
- Qualified wages are limited to $10,000 per employee per calendar quarter in 2021 ($7,000 per employee, per quarter for a total of $14,000 per employee in 2021)
- Qualified Wages defined:
- For an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.
- For an employer that averaged more than 500 full-time employees in 2019, qualified wages are generally those wages paid to employees that are not providing services because operations were fully or partially suspended or due to the decline in gross receipts.
- The ERC is claimed on the Employer’s Quarterly Federal Tax Return Form 941 using Worksheet 1 from the last page (20) of the form’s instructions to calculate the credit. (both attached for reference)
*For employers who experienced a reduction in Gross receipts in any quarter compared to 2019 of 50% or more during 2020, had their operations partially or fully suspended by governmental authority, and took advantage of the PPP Loan Program may retroactively claim credit of up to $5,000 per employee per quarter of wages not included in the PPP forgiveness calculation.
For additional information see IR-2021-21, the IRS has yet to update their FAQ and instruction pages.