The Employee Retention Credit (ERC) is a refundable employment tax credit available to employers for certain wages paid between March 13, 2020, and December 31, 2021.

Employers may still claim the ERC for these prior periods by filing applicable adjusted employment tax returns.

An overview of ERC rules.

In general, the ERC is available to eligible employers that paid qualified wages during the effective period, is calculated by taking a percentage of qualified wages, and is subject to per-employee limits.

Qualified wages are certain FICA wages and health plan expenses paid by an employer during a period in which an employer experienced a significant decline in gross receipts or full or partial closure due to a government order.

For small employers, all such wages qualify, but for large employers, only those wages paid to employees not providing services qualify.

The definitions of these main parameters changed throughout different periods, in addition to some new employer categories and rules being introduced.   

The list below provides a summary of the distinct rules in these different periods.  

March 13, 2020, through December 31, 2020

Employer Eligibility Requirements:

Any employer operating a trade, business, or tax-exempt organization is eligible, but certain governmental agencies and instrumentalities are excluded.

A “significant decline in gross receipts” occurred if gross receipts were less than 50% of gross receipts for the same quarter in 2019 and ended in the first quarter after the calendar quarter in which gross receipts were greater than 80% of gross receipts for the same calendar quarter in 2019.

Qualified Wages:

A “small eligible employer” had fewer than 100 employees in 2019.

Percent of Qualified Wages Applied to ERC:  

50%

Per-Employee Maximum:

$10,000 of qualified wages can be recognized for the year (for a maximum ERC of $5,000 for the year).

January 1, 2021, through June 30, 2021

Employer Eligibility Requirements:

The category of eligible employers was expanded to include certain governmental employers, including organizations described under IRC §§501(c)(1) and 501(a), colleges, universities, and organizations whose principal purpose is to provide medical or hospital care.

A “significant decline in gross receipts” occurred if gross receipts in the quarter or prior quarter were less than 80% of gross receipts in the same calendar quarter in 2019 or, if the employer was not in existence in 2019, in 2020.

Qualified Wages:

The definition of “small eligible employer” was changed to include employers with 500 or fewer employees in 2019.  

Percent of Qualified Wages Applied to ERC:  

70%

Per-Employee Maximum:

$10,000 of qualified wages can be recognized per quarter (for a maximum credit of $7,000 per quarter). 

July 1, 2021, through September 30, 2021

Rules from the previous period continue to apply to the conventional ERC.

Employer Eligibility Requirements:

A new category of eligible employer, a Recovery Startup Business (RSB), was introduced.

An RSB is an employer:

  • That began carrying on any trade or business after February 15, 2020,
  • Averaged annual gross receipts under $1,000,000 for the 3-taxable-year period ending with the taxable year that precedes the calendar quarter for which the credit is determined,
  • Employed 1 or more employees that were not greater-than-50% owners, and
  • Did not otherwise meet the eligibility criteria for the ERC (significant decline in gross receipts or full or partial closure due to government order).

Additionally, there is a credit maximum, limiting RSBs to $50,000 in ERC per quarter.

Qualified Wages:

A new category of employer, “severely financially distressed employer,” was introduced.

This employer experienced a decline in gross receipts to less than 10% of gross receipts as compared to gross receipts in the same calendar quarter in 2019.

All wages paid by a severely financially distressed employer qualify for the ERC, independent of employee count and employee service.

October 1, 2021, through December 31, 2021

The conventional ERC was terminated for this period.

The RSB ERC rules from the previous period continued to be effective, except the definition of RSB was changed to not require that the employer not otherwise meet the eligibility criteria for the conventional ERC (significant decline in gross receipts or full or partial closure due to government order).

Where can I learn more?

To learn more about other related information you can go:

  • Here to get more information about paid leave tax credits under the Families First Coronavirus Response Act.
  • Here to get information about the Small Business Association’s Paycheck Protection Program.

Getting tax guidance

Filing taxes is a critical part of being an employer. If there’s something you don’t understand about tax law or credit, or you make a mistake when filing, there can be significant consequences, or at the very least you may experience a few headaches. Getting professional tax guidance from your HR partner can help you avoid misunderstandings and mistakes in your business so you can move forward with confidence. 

PrimePay has teamed up with Synergi Partners to help businesses determine their eligibility and claim the ERC for these periods.

If you’re interested in learning more about how PrimePay can help you claim the ERC, please view the following resources or reach out to us at (833) 968 - 6288.

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