The Employee retention credit and you (a love story)
For 2021, if your business has gross receipts of less than 80% of your 2019 income from the same quarter, you could qualify for a credit of up to 7K per employee per quarter!
*Important note. The American Rescue Plan Act of 2021 expands this credit to all quarters of 2021, and opens availability for “recovery startup businesses” that began operations after 2/15/20. We are still awaiting guidance from the IRS on implementation for recovery startup businesses.
Who is eligible? - Businesses with fewer than 500 Employees that had gross receipts of 80% or less when compared to the same quarter of 2019 qualify for a credit of 70% of the wages paid, up to 7K per employee!
I don’t have employees, can I take this credit? - No, this is for employee wages paid via payroll only, there’s no comparable credit for self employed individuals (S-corps, see below)
I’m an S-corp, can I take this credit for my wages? - S-corporation owners that directly and indirectly own 50% or less of the company CAN qualify for ERC, however owners with greater than 50% do not qualify.
Can I put my family on payroll for this credit? - NO! the IRS specifically denies wages for relatives of 50% or greater owners.
Can I claim this if I received PPP? - Yes and no! You cannot use the same wages for PPP and ERC, however you CAN use wages that you didn’t use for PPP for purposes of the ERC. The strategy is to use owner wages the wages over 10K in a quarter, and non payroll expenses to satisfy the PPP loan as much as possible to maximize the wages remaining for ERC.
What’s the catch? - The credit is designed to help small employers who suffered a revenue hit due to COVID keep their employers, but unlike PPP, there’s no requirement to maintain headcount, you just need to claim the credits! The only trick as of right now is that the IRS is massively behind on processing refunds relating to these credits. The original plan was that these credit refunds would be issued within weeks of filing, then months, now it looks like most filers will be waiting a year or more for the IRS to process them because of COVID backlogs.
How do I claim this credit? - Some payroll companies will allow you to claim the credit in-app, however they don’t seem to be doing any work to maximize the credit when there’s PPP in play, so it may be worth it for us to take a look at it.
If you’re still unsure whether this credit applies to you, please reach out. I’d rather answer a hundred No’s than miss a single yes! This is big money for our small business clients!