New Brass Tacks on the Employee Retention Credit (ERC)
Jeanna Schenk, CPA, MST | January 17, 2022
On November 15, 2021, the Infrastructure Investment and Jobs Act was signed into law. As a result, the Employee Retention Credit (ERC), with the exception of recovery startup businesses, is no longer available for Q4-2021 for wages paid after Q3-2021. This means the total maximum credit for employers during 2021 is $21,000 ($7,000 credit per employee for each Q1, Q2, and Q3) per employee.
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The exception is for recovery start up businesses, which are companies that began operations after February 15, 2020, and for which the average annual gross receipts do not exceed $1 million for the three-taxable-year periods ending with the year that precedes the calendar quarter for which the credit is determined. (Read that twice, or for guidance, reach out to our trusted advisors using our contact form below.)
There is still time to file for the ERC
The ERC is still available for Q2-2020 through Q3-2021. Companies that have not taken advantage of this very beneficial credit still have time to file for it. The credit was originally enacted during the start of the pandemic, through the CARES Act, as an incentive for companies to keep employees on payroll.
There are two main ways to qualify for the credit for tax year 2020:
- A company can either experience a decline in gross receipts of at least 50% compared to the same quarter in 2019, or
- must have experienced a full or partial shutdown due to a government order.
In 2021, the same tests apply, however, the gross receipts test is easier to meet. Instead of a 50% decline in gross receipts, a company only needs to experience a 20% decline compared to the same quarter in 2019. In 2020, the credit maxes out at $5,000 per employee for the full year, while in 2021 this amount goes up to $7,000 per employee per quarter. To claim the credit, Form 941 is amended for each qualifying quarter and a refund is requested.
We Welcome Your Questions
If you believe your company may qualify for any of the quarters mentioned above, trusted advisors at REDW are ready to help you work through specifics and optimize your credit application. Please reach out to Jeanna Schenk or James A. Ortiz, below, to discuss further.