Last March, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), employers were presented with the Paycheck Protection Program (PPP) Loan and the Employee Retention Credit (ERC) as relief options to help their businesses in unprecedented times. At a time when countless companies and industries were forcibly shut down and heavy restrictions and lockdowns implemented, many businesses scrambled and took advantage of these opportunities.
Now, a year later, a great number of businesses continue to struggle. If they are even allowed to operate as usual, in-person customers are more hesitant and they are still recovering from a hard-hit year. This past December, as the pandemic was showing to linger longer than anyone expected, Congress updated the legislation and made some key changes businesses might want to explore.
What Is the ERC?
The ERC was introduced as a refundable payroll tax credit to companies that agreed to retain employees. The purpose was to encourage businesses to keep employees on the payroll, even if for part of that time, the government enforced restrictions preventing them from reporting to work.
According to the original CARES act, employers in the private sector were offered, if qualified, a tax credit equivalent to 50 percent of the wages paid to an employee after March 12, 2020. This enabled employees to receive a refundable tax credit up to $5,000. Businesses that qualified had been suspended in some way for at least some part of 2020 and the business had experienced a significant decrease of 50 percent in gross receipts when compared to the same quarter in 2019.
Recent Changes Have Been Made
In December of 2020, updates were added to the CARES Act through the Taxpayer Certainty and Disaster Relief Act to give relief to businesses that are continuing to struggle.
These changes include:
- Receiving the PPP loan no longer disqualifies employers from the ERC. In the original legislation, businesses had to choose. Now, most small business tax accountants will encourage a business facing hardship to apply for the ERC even if they at one point received the PPP loan.
- The ERC credit rate increased to 70 percent of qualified wages, compared to 50 percent with the original CARES Act.
- While before employees were able to receive a tax credit up to $5,000, Congress has now increased the limit to $10,000.
- The credit is now available to some employers in the public sector, such as public colleges and universities and organizations that provide healthcare.
- A business qualifies now if the decline in gross receipts was less than 80 percent of gross receipts (as opposed to 50 percent before the updates) received in the same quarter in 2019.
The legislation is retroactive, meaning if a business did not apply for the ERC because they had received the PPP, the business is now able to claim the ERC based on its 2020 performance.
Consult Your Business Tax Accountant
To actually claim the ERC, employers who qualify will be asked to report their total qualified wages and health insurance costs on a quarterly basis. This will be filed through Form 941. Reaching out to a local CPA firm in Charlotte can expedite this process for your business, as well as ensure your business is abiding by the proper protocols and maximizing the benefits for which you qualify.