Is your business eligible for the Employee Retention Credit that could amount to $33,000 per employee?
The Consolidated Appropriations Act (“CAA”, January 2021) and the American Rescue Plan Act (“ARPA”, March 2021) expanded the Employee Retention Credit for businesses from the original Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act, March 2020). The purpose of the Employee Retention Credit, as part of these Acts, is to incentivize employers to retain their employees during the COVID-19 pandemic.
The incentives start with a $5,000 annual credit per employee in 2020 and increase to a $7,000 quarterly credit per employee in 2021. For a business to receive full credit, the eligible employee must be paid at least $10,000 each quarter for which the credit is claimed.
Additional requirements for the Credit are the ability to meet one of the following criteria:
- When claiming the credit for a quarter in 2020: 50% reduction in revenues as compared to the same quarter in 2019.*
- When claiming the credit for a quarter in 2021: 20% reduction in revenues as compared to the same quarter in 2019.*
- Having operations that are fully or partially suspended due to government order limiting commerce, travel, or group meetings due to COVID-19.
*There is an election to use the quarter prior to the quarter in which the Credit is being claimed, to determine eligibility based on revenue reduction.
Planning is essential in obtaining the Employee Retention Credit for a business. Paycheck Protection Program (PPP) loans impact the potential benefit of this credit due to the requirement to allocate wages used toward PPP forgiveness and toward the Employee Retention Credit. Each eligible wage paid should be allocated once to each PPP forgiveness and the Employee Retention Credit.
DHJJ Advisory Services
DHJJ offers advisory services to clients for all aspects of taxation, including answering questions and assistance planning for obtaining the Employee Retention Credit for your business.