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April 19, 2021

Is Your Company Eligible For The Employee Retention Tax Credit?

The Employee Retention Tax Credit (ERTC), first approved by Congress in the early days of the COVID-19 crisis last spring, provides tax credits to eligible employers. The program expires December 31, 2021.

Employers are eligible if their business operations were suspended because of a COVID-19 related government order, or if they experienced a 20 percent quarter-over-quarter decline in revenue compared to 2019.

As Venable, LLP explains, the credit offsets the employer’s portion of payroll taxes and is refundable, which means if the credit amount exceeds the employer’s payroll tax burden in a calendar quarter, the employer can choose to receive a refund of the excess or apply the excess against future payroll taxes.

Additionally:

  • Though employers who received U.S. Small Business Administration Paycheck Protection Program (PPP) loans initially were not eligible for the ERTC, under a law signed by President Joe Biden earlier this year, these firms now can apply for the ERTC. The ERTC cannot be claimed for wages funded by a PPP loan, however.
  • That new law also increased the credit amount for 2021. According to Venable, for 2021, the maximum per-employee credit amount is equal to $7,000 per quarter — thus, the maximum credit for 2021 is $28,000 per employee if an employer is eligible in each quarter.
  • Even if they do not meet the gross receipts or shutdown criteria, employers are eligible for the ERTC for the third and fourth quarters of 2021 if they are a “recovery startup business.” Recovery startups either: do not qualify under the full or partial suspension test or the gross receipts decline test; began operations after February 15, 2020; or has average annual gross revenues in the preceding three-year period of no more than $1 million.
  • In 2020, an employer with more than 100 full-time employees in 2019 could claim the ERTC only for wages paid to employees who were not working or were working a reduced schedule without a corresponding reduction in wages. That threshold is now 500 employees.

Read Venable’s full explanation of how the ERTC works here.