The CARES Act passed on March 27, 2020 established the Employee Retention Credit (ERC), which allowed eligible businesses to claim up to a $5,000 credit for keeping employees on payroll. At the time, businesses were not allowed to claim the ERC if they received a PPP Loan, therefore, this credit was ignored by many business owners. Along came the Consolidated Appropriations Act on December 27th, which included the Taxpayer Certainty and Disaster Tax Relief Act (TCDTRA). This bill enhanced the CARES Act to allow qualified business to claim both the ERC and receive a PPP loan.
EMPLOYEE RETENTION CREDIT
The CARES Act provides a refundable credit against quarterly employment taxes equal to 50% of the qualified wages and compensation up to $10,000 per employee. Only wages paid after March 12, 2020 and before January 1, 2021, qualify for the credit. TCDTRA expanded the credit into 2021 for eligible businesses. We believe most small business may get a credit of up to $5,000 per employee. For example, if you have 6 employees, this results in a $30,000 credit.
Employers eligible for the Employee Retention Credit are those that:
- Carried on a trade or business during the 2020 calendar year; AND
- With respect to any calendar quarter:
- Fully or partially suspended their operations due to orders from any governmental authority limiting commerce, travel, or group meetings due to COVID-19; OR
- Experienced a significant decline in gross receipts of 50% or greater in a 2020 calendar quarter when compared to the same calendar quarter in 2019.
Based on the above qualification requirements we think most clients qualify.
PPP LOAN FORGIVENESS
The guidelines state that you cannot use wages for both the ERC and PPP loan forgiveness. This complicates the calculations needed to maximize both the ERC and PPP loan forgiveness. We believe many will qualify for tens of thousands of dollars in additional funding, but it will require significantly more work to finalize ERC calculations and PPP loan forgiveness applications correctly. It is highly recommended that the ERC and PPP forgiveness calculations be done simultaneously starting in late Spring 2021.
THOMAS DOLL INVOLVEMENT
Our team can help you navigate both programs to ensure you maximize these credits, while remaining compliant with government guidelines. Even if you already applied for PPP loan forgiveness, you will need to ensure you do not double count wages when applying for the ERC. We can help navigate these complex rules. We will reach out to our accounting clients directly offering these additional services over the next few months.
Please let us know if you have any questions.