What is the ERC?

The Employee Retention Credit (ERC) is a Payroll Tax Credit designed to reward businesses for retaining employees during COVID-19. The credit was initially signed into law in March 2020 as part of the CARES Act. The credit was later expanded upon with the Consolidated Appropriations Act in December 2020 and the American Rescue Plan Act in June 2021.

Business Owners can receive a refundable credit of up to $5,000 per employee in 2020, and $7,000 per employee, per quarter (excluding the 4th quarter), in 2021 for qualified wages.

Example A:

In 2021, when comparing to respective Q1, Q2, and Q3 of 2019, Company A saw gross receipt reductions by 15%, 22%, and 28% respectively. Because Q3 and Q4 saw more than a 20% reduction in gross receipts, all wages paid during those quarters are considered qualified wages and will be eligible for an employee retention credit.

Example B:

In 2020, Company B was a non-essential business, and received a governmental shut-down notice from March 13th to April 24th. This shutdown caused a nominal effect on the company’s ability to operate. Because of that, the wages paid during those dates, March 13th to April 24th, are qualified wages and can be used to calculate the Employee Retention Credit.

Example C:

In 2020 or 2021, Company C saw no relative reduction in gross receipts when compared to the 2019 quarters. Company C was also not required by any level of government to shut down either fully or partially for any amount of time. But Company C’s primary vendor, Company D, was shut down by a governmental notice and severely delayed supplies to Company C. This had a nominal effect on Company C’s ability to serve its customers. This time frame of delay caused by Company D’s shutdown was from March 13th, 2020 to February 20th, 2021. All qualified wages during these time frames may be used to calculate the Employee Retention credit.

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