Does My Business Qualify for the Employee Retention Credit?

Does My Business Qualify for the Employee Retention Credit?

The Employee Retention Credit (ERC) was rolled out in 2020 as part of the federal government’s COVID-19 relief effort for small businesses. The credit was intended as an incentive to keep employees on payroll, and the refundable credit is based on wages paid. It originally expired at the end of 2020, but has been extended through 2021.

Who is eligible?

Eligible employers must have less than 100 employees (raised to 500 for 2021) and have been in operation before 2/16/20. To qualify for the credit employers must show:

  • A 50% decline in gross receipts from the same quarter in 2020 vs 2019 for the 2020 credit
  • A 20% decline in gross receipts from the same quarter in 2021 vs 2019 for 2021 credit
  • OR a full or partial closure due to a government order

A business is eligible for the ERC is they were forced to fully or partially suspend operations or reduce business hours because of a government COVID-19 order. In order to determine if this applies to your business, see the IRS FAQs.

The CARES Act also allows a business to test eligibility by using the “immediately preceding” calendar quarter. So if your business does not qualify for the 20% decline in Q1 2021, you can look at Q4 for 2020 compared to Q4 2019.

How much is the credit?

The credit for 2020 is 50% of qualified wages, and 70% for 2021. The maximum credit per year is $5,000 per employee for 2020 and $7,000 per quarter, or $28,000 per year, per employee for 2021.

What if I received a PPP Loan?

You may still be eligible for the ERC, but you cannot use the same wages as you used with forgiven PPP funds.

How Do I Claim the Credit?

The credit is claimed by either requesting a refund on form 941, or lowering your tax deposits for the quarter. If you already filed you form 941 for 2021 or 2020, you will need to amend and file a 941-X to claim the credit and refund. You can also request an advance payment of the credit using Form 7200.