REMINDER: Apply For COVID-19 Employee Retention Tax Credit

Businesses of all sizes have been desperate to retain employees during the COVID-19 pandemic even while suffering economic losses. As a reminder, last year the U.S. Congress passed an Employee Retention Tax Credit (ERTC) that may help companies recoup money spent on wages.

The program is open to businesses with fewer than 500 employees. Applications are available through the IRS website. The U.S. Chamber of Commerce also has information about applying for the ERTC here.

As Venable, LLP has explained, 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.