The Employee Retention Credit (ERC) is a COVID relief program that allows for a tax credit against payroll taxes. If you qualify, it can be significant (for 2021, it is equal to 70% of qualified wages up to a maximum of $7,000 per employee, per quarter). It is important that you consider the ERC when preparing your first quarter 2021 payroll filings (the credit is claimed on payroll tax returns).
If any of the following apply, you may be eligible for the ERC for the 1st calendar quarter of 2021:
- Your calendar 2020 quarter 4 revenues were down > 20% compared to calendar 2019 quarter 4 or
- Your calendar 2021 quarter 1 revenues were down > 20% compared to calendar 2019 quarter 1 or
- You were subject to either a full or partial government mandated suspension of business during calendar 2021 quarter 1
Below are some additional comments and recommendations regarding the process of claiming ERC:
- The ERC can be claimed on an amended payroll tax return (it does not have to be claimed on the original filing). Of course, this means the cash benefit will be received later than if you claim it on the original filing; however, it also provides more time to properly determine the credit amounts.
- You can utilize both the Paycheck Protection Program (PPP) and the ERC; however, you cannot use the same wages for both purposes.
- Consequently, if you received a PPP round 2 in the 1st quarter of 2021, we are generally recommending to waiting to file amended payroll tax returns until after the 24-week covered period is over in order to analyze and maximize both programs fully.
- There are also limitations on utilizing the same wages for both ERC and other tax credit(s) and grant programs
- Depending on your circumstances, we might recommend other approaches that are available for claiming and reporting the credit, especially if you are in a position where cash flow is critical.
- Unfortunately, the IRS still has not issued guidance regarding ERC for 2021