Changes to the ERC: What Employers Need to Know

Changes to the ERC: What Employers Need to Know 1350 900 Balance Point Team

Updated 6/22/21

The Consolidated Appropriations Act of 2021 (CAA) was signed by the President on December 27, 2020 extending benefits enacted by the Families First Coronavirus Response Act (FFCRA).

It allows employers to take advantage of the Employee Retention Credit (ERC) even if they received a Paycheck Protection (PPP) loan. The ERC can now be claimed retroactively for 2020, and businesses can claim a 50% credit on wages (up to $10,000). It can be claimed, however, only for wages not covered under a forgiven PPP loan.

How Do I Know if I Qualify?

There are two scenarios in which an employer is eligible for the ERC under the CAA:

  1. Your business was fully or partially suspended by the appropriate governmental authorities at some point in 2020, or
  2. Your business had a drop in gross receipts in 2020 of more than 50% from the corresponding quarter of 2019.

If your business only qualifies for scenario 1, you can only take the credit for the time your business was shut down.

If your business qualifies for scenario 2, you can take credits for every quarter that your gross receipts are less than 50%. It will end in the quarter that is 80% of gross receipts from the corresponding quarter of 2019.

What Impact Does the Number of Employees Have on Credit?

If your business qualifies for either of the two scenarios, you must determine the average full-time equivalent employees (FTEs) your business had for 2019. This will determine whether the credit is based on wages paid only to employees not working or all employees paid.

  • If the average FTE is over 100, then you can only take the credit on employees paid that were not working.
  • If the average FTE is under 100, then you can take the credit on all employees paid, working or not.

Note: The new law allows an employer to take the credit on furloughed employees.

What Changes in 2021?

To qualify, an employer needs to see a decline in gross receipts in a calendar quarter of less than 80% of the gross receipts in the same quarter in 2019. (For 2020, gross receipts were required to be less than 50%).

The credit per employee will increase from 50% in 2020 to 70% in 2021 on qualified wages. Qualified wages are wages and compensation paid by an eligible employer to employees including health plan expenses (dental and vision).

  • Qualified wages for 2020 are $10,000 per employee for all calendar quarters, with a maximum credit of $5,000 per employee for the year.
  • Qualified wages for 2021 are $10,000 per employee per quarter, with a maximum credit of $7,000 per employee per quarter.

The FTE threshold was increased to 500 employees (from 100).

How Can Balance Point Help?

So far, we have recovered more than $50 million in Employee Retention Credit for our clients!

Our trained team members guide clients through the ERC by:

  • Providing the tools to determine eligibility – We assist with evaluating gross receipts and examining the impact executive orders had on business operations.
  • Helping determine qualified wages – We assist with determining qualified wages, accounting for the employer portion of health plan expenses.
  • Assisting with payroll tax filing – We analyze quarterly tax filing deposits and assist with the IRS Form 941 and/or Form 7200.

We take pride in putting our clients’ best interests first! If you’d like to learn more about our services and commitment to furthering your business, click here to schedule a consultation.

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