Employee Retention Credit – What You Need to Know Now (as of 4/2/21)

The ERC for both 2020 and 2021 may be the most impactful source of COVID relief for qualifying employers.
The ERC is also one of the least understood aspects of COVID relief.
Even if you’ve previously determined that the ERC is not worth your consideration, you should keep reading.

NOTE: For any employer that previously disregarded the ERC for 2020 because you obtained a PPP loan – this restriction was removed retroactively. We can claim the ERC that you’re otherwise entitled to by filing IRS Form 941-X.

NOTE #2: The Employee Retention Tax Credit for 2020 and 2021 is a REFUNDABLE PAYROLL TAX CREDIT. This means that the ERC is basically a negative payroll tax liability. It is clearly the intention of the US government to fund employers by returning money to them in the form of a negative payroll tax liability, versus any other mechanism. As a result, if you qualify for $100,000 in ERC credits from Q3 2020, once the appropriate 941x tax return is processed, the IRS will cut you a check for $100,000.

	2020 Employee Retention Tax Credit	2021 Employee Retention Tax Credit
ERC Qualifying Reasons	Full/Partial Shutdown; or 50% or greater reduction in gross receipts from any calendar quarter compared to the same quarter 2019.	Full/Partial Shutdown; or 20% or greater reduction in gross receipts from any calendar quarter compared to the same quarter 2019. Alternate gross receipts test for 2021: 20% or greater reduct
Eligibility Period	Full/Partial Shutdown: From the 1^st day of the full/partial shutdown to the last day of the full/partial shutdown. Reduction in Gross Receipts: Each full quarter starting with the first quarter where the 50+% reduction in gross receipts occurred through the first full quarter when gross receipts exceeded at least 80% of gross receipts from the same calendar quarter in 2019.	Full/Partial Shutdown: From the 1^st day of the full/partial shutdown to the last day of the full/partial shutdown. Reduction in Gross Receipts: Any full calendar quarter during which an employer qualifies.
ERC Eligible Wages	All W2 Wages – FFCRA Wages + Employer Cost for Health Insurance	All W2 Wages – FFCRA Wages + Employer Cost for Health Insurance
Limit on ERC Qualifying Wages	ERC is available on the first $10,000 in qualifying wages per employee, for all of 2020.	ERC is available on the first $10,000 in qualifying wages per employee – per quarter – for all of 2021.
ERC %	50% of qualifying wages	70% of qualifying wages

NO DOUBLE DIPPING

While the ERC Is an extremely generous and beneficial program for many employers, it is imperative that this be handled properly. There is no word yet on exactly what the IRS audit program around ERC will look like, but as a taxpayer, I hope that it is stringent.

You cannot claim the ERC on any wages that you reported to your lender as paid for with PPP funds.

If you received COVID related grant money from a state or local entity, you cannot claim the ERC on any wages that you reported to that entity as having been paid for with those funds.

If you received an EIDL loan, you can claim the ERC on wages paid for with EIDL money.

If you have not yet applied for 2020 PPP Loan Forgiveness, you may have an opportunity to maximize your ERC by modifying the PPP forgiveness reporting strategy and claiming the ERC on certain wages that were paid during the 2020 Covered Period.

If you are or have obtained a PPP loan in 2021, so long as you will ultimately be able to obtain PPP loan forgiveness on every dollar of your PPP loan (by spending at least 60% on payroll costs), you should adopt a strategy to maximize the ERC that you can claim on eligible wages paid to any employee, for every calendar quarter in 2021.

Employers who qualify for the ERC in 2021 may request an advance on the ERC that you would otherwise be entitled to by using IRS Form 7200.

At Checkmate, we are just beginning to file the first sets of 2020 941x returns for our clients. We do not yet know how long it will take for IRS to process these. We also do not yet know how long it will take the IRS to recognize the credit on account or cut a check. Based on how things are going at the IRS these days, we can’t make any assumptions based on what’s happened in the past. So, in order to keep our eyes on things, we’ll be monitoring IRS tax transcripts until we see that the 941x has been processed.

For any Checkmate clients that have not yet signed up for our 2020 or 2021 ERC services, you can do this here: