The last two years have been challenging for everyone, including businesses that suffered greatly from the COVID-19 pandemic, people’s movement restrictions, and economic hardship. As a result, the USA federal government has stepped up to provide financial resources to these companies under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Since the Employee Retention Credit (ERC) was first included in the action, several modifications and additions have been made. The first was funded by the American Rescue Plan Act, and the second by the Consolidated Appropriations Act of 2021.
Firstly the ERC provisions were complicated, and later on, these changes made it more challenging, requiring a consultant for legal advice.
Key ERC Credit Takeaways You Will Learn:
- CARES Act ERC: Understand the CARES Act Employee Retention Credit and its purpose.
- Eligible Employers: Learn who qualifies for the CARES Act Employee Retention Credit.
- ERC & PPP: Clarify the relationship between Employee Retention Credit and Paycheck Protection Program (PPP) loans.
- Qualified Wages: Discover the definition and importance of “Qualified Wages” for ERC.
- Other Tax Credits: Explore additional Coronavirus refundable tax credits available under the CARES Act.
Breaking News Update to What is the CARES Act Employee Retention Credit?: The IRS temporarily paused processing ERC Claims for the remainder of 2023 due to companies charging fees based on a percentage of the refund amount of their Employee Retention Credit claimed, plus a list of other reasons.
We at Disaster Loan Advisors (DLA) predicted this over one year ago when we made this ERC video warning business owners. See the ten-minute mark of the video for details.
Even though IRS processing has temporarily paused, you will still want to file now (if you qualify) because the IRS will resume processing tax credit claims in the order they are received.
Business owners that have not filed for the ERC Credit yet? DLA will provide a Free ERC Consultation where we’ll do a deep-dive analysis to determine if you even qualify for tax credit. Everything we do is by-the-book per IRS rules and guidelines.
What is the CARES Act Employee Retention Credit?
ERC, created in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is regarded as one of the most critical contributions from the government so far among so many financial resources.
The employer retention credit is a provision of the CARES Act that allows employers to claim a tax credit for each full-time employee who remains employed with the company for at least 36 months after being hired. The credit is available to both small and large businesses. To qualify and be eligible for the ERC, the business must have at least 50 full-time employees and have filed employment taxes in at least two of the previous three years.
The ERC is a fully refundable tax credit by the US government for businesses. Here, the qualified company may get a refund equivalent to 50% of the eligible salaries, including healthcare costs.
ERC applies to qualified wages paid after March 12, 2020, but before January 1, 2021. The maximum credit for an eligible employer for preparing qualified wages paid to any employee is $5,000. Therefore, each employee’s total amount of qualified earnings for all calendar years is $10,000.
Who is an Eligible Employer for the CARES Act Employee Retention Tax Credit?
The CARES Act, a new federal law enacted on January 1, 2019, offers a refundable tax credit worth up to $2,500 per eligible employee. Businesses with at least 50 employees are eligible for the credit. An eligible employee is:
- An individual who is employed in a full-time capacity.
- An individual has completed at least 26 weeks of service in a calendar year.
- An individual whose job duties require significant intellectual effort or skill.
Can an Eligible Employer Receive Employee Retention Credit and a Loan Under the Paycheck Protection Program (PPP)?
Unfortunately, no. If a company obtains a PPP loan, they become ineligible to earn the Employee Retention Credit.
How is the ERC Amount Determined?
For the tax year 2020,
For Tax Year 2020, you’ll receive a credit of approximately 50 % of each employee’s wages, with a cap of $5000 maximum. So if you’ve 55 employees, you’ll receive an ERC of 55 x $5000. Additionally, you may claim group health plan fees from the qualified earnings.
For the tax year 2021,
For the tax year 2021, businesses are eligible to get 70% of qualified wages, which is $10,000 for each employee. So if you have 55 employees, you’ll get:
ERC 55 x $7000 for the tax year 2021.
You may also claim the health plan fees for the qualified earnings.
Kindly note that though we’ve simplified the way of calculation, there are multiple clauses for ERC. Therefore, it’s always better to consult a professional to get every penny of due payment.
Learn more about Employee Retention Credits – A Detailed FAQ Guide.
CARES Act Updates
Many changes have been made to the ERC in the most recent versions. One such prominent change is the flexibility to apply for the ERC and a tax credit under COVID-19. However, only one credit may not be claimed for the same pay.
Another important update is regarding the salary requirements for ERC calculations. Businesses cannot include paid leave compensation.
If you’re eligible for Restaurant Revitalization Fund (RRF) grants and closed venue operator awards, you’re not eligible for ERC on your pay salaries. However, you may utilize Restaurant Revitalization Fund money until 2023 to cover costs. Read full restaurant employee retention credit details here.
CARES Act Laws
The US federal government created ERC under the Coronavirus Aid, Relief, and Economic Security (CARES) Act through the law, effective from March 2020. The primary purpose of the aid was to help employers keep workers on the payroll.
The Consolidated Appropriations Act of 2021 (CAA) and the American Rescue Plan Act are other measures influencing the act (ARPA). Through 2021, both bills modify and prolong credits and advance payments.
The CARES Act was enacted in response to the COVID pandemic, which saw increased unemployment and business closures across the United States. The CARES Act aims to help businesses retain employees and prevent them from leaving to find employment that pays more. As a result, the CARES Act will likely positively impact job security and economic growth by providing a financial incentive for employers to keep their employees.
Is an Employer Required to Pay Qualified Wages to Its Employees Under the CARES Act?
The CARES Act gives two options to businesses: either pay the employees’ qualified wages and claim retention credit or elect not to claim the Employee Retention Credit. So, employers don’t need to pay qualified wages to the employees.
In the ERC scheme, small and medium-sized firms can receive up to 50% of the qualifying salaries earned from March 13 to December 31, 2020. Businesses can claim credit for 2021. CAA increases the tax credit to 70% paid through 2021.
What are Qualified Wages Paid?
The definition of qualifying earnings depends on how many workers an eligible firm has. For example, if an employer averaged more than 100 full-time employees during 2019, qualified wages generally include specific health care costs (up to $10,000 per employee).
These employers may only count earnings up to the amount that the employee would have been paid for working an equal length during the 30 days immediately before the time of economic hardship.
Suppose an employer averaged 100 or fewer full-time employees during 2019. In that case, qualified wages are those wages, including health care costs (up to $10,000 per employee) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services.
Under the CARES Act, employers are eligible for a retention credit if they keep at least 50% of their workers on the payroll for at least 180 days in any calendar year. The credit is calculated as a percentage of wages paid to employees during that period.
How Does a Decline in Gross Receipts Affect Employee Retention Tax Credit?
In relation to gross receipts, an employer or a business may be eligible for the ERC if they have experienced a decline in gross receipts by 20 to 50% on a quarterly basis for 2020 and 2021 tax year.
What Other Coronavirus Tax Credits Available?
Due to COVID-19, you can apply for the ERC and a tax credit for giving paid leave. You cannot, however, claim both credits for the same income.
With the newest updates of ERC, there are various adjustments. Additionally, you cannot consider the paid leave compensation when establishing the qualifying wages for the ERC. This year, the surplus credits from the Employer Retention Tax Credit would also be helpful for health care benefits.
Is there a CARES Act ERC Deadline?
Yes, there is a deadline of three years for claiming the Employee Retention Credit. This three-year deadline is for eligible businesses who missed the deadline to claim ERC, so they are eligible to claim retroactively.
For your kind information, it needs to be clarified that wages earned after the third quarter of 2021 are no longer eligible for the employee retention tax credit. However, any business can claim the tax credit for tax years 2020 and 2021, up to three years from the initial filing date. Read more about Employee Retention Credit Deadline here.
Where can I get more information about The Cares Act Employee Retention Credit?
You can visit the official “Internal Revenue Service” website to get more information.
Conclusion and Summary on What is the CARES Act Employee Retention Credit?
ERC is not just beneficial for eligible businesses; it’s a much-needed relief for the employees. Employees who worked for private companies and tax-exempt organizations throughout the calendar year and engaged in commerce or trade are eligible for this ERC. Additionally, workers who experienced a significant loss or a fall in their gross revenues during their calendar quarter are also qualified for the ERC.
If you’re an employer, contact a tax expert as soon as possible to determine if your company qualifies for the employee retention credit. As long as you match the qualifying standards, it’s worth looking into the Employee Retention Credit.
ERC PDF Download of This News Article
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Claim the Employee Retention Credit (ERC / ERTC) and Get Up to a $26,000 Refund Per Employee for Your Business
Disaster Loan Advisors can assist your business with the complex and confusing Employee Retention Credit (ERC) and Employee Retention Tax Credit (ERTC) programs.
Depending on eligibility, business owners and companies can receive up to $26,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021.
The ERC / ERTC Program is a valuable tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.
Schedule Your Free Employee Retention Credit Consultation to see what amount of employee retention tax credit your company qualifies for.
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