The Employee Retention Credit (ERC), was enacted in March 2020 as part of the CARES Act and has since been modified twice by Congress to provide greater benefits to employers. Currently, eligible employers may claim a credit equal to 70 percent of the “qualified wages” paid to employees, up to a maximum credit of $7,000 per employee per quarter. If the credit exceeds amounts owed for payroll taxes the excess is fully refundable so it can generate cash for your business.
If you are planning to claim the Employee Retention Credit for Quarter 1 of 2021, it is important that you act soon rather than waiting. The credit can be claimed on an originally filed quarterly payroll tax return (Form 941) or an amended return. The Form 941 filing for Quarter 1 is due April 30th and can be e-filed so it will be processed quickly by the IRS. If you neglect to claim the credit on your original Form 941 it must be claimed on a paper filed amended return that may take the IRS many months to process.
If you use a third-party payroll service, we recommend contacting them as soon as possible to inform them of your intent to claim the ERC so it can be reported on your Quarter 1 payroll return.
To qualify for the credit in Quarter 1 of 2021 a business must meet one of the following two tests:
- The business experienced a full or partial suspension of operations during Quarter 1 of 2021 due to a governmental order limiting commerce, travel, or group meetings due to COVID-19.
- The business experienced a greater than 20% decline in gross receipts in Quarter 1 of 2021 compared to Quarter 1 of 2019; or a greater than 20% decline in Quarter 4 of 2020 compared to Quarter 4 of 2019.
For additional information on the Employee Retention Credit, please see: 2020 and 2021 Employee Retention Credit (ERC) Overview on our website. Caution: PPP loan borrowers that wish to claim the credit face some complexity due to the interplay between eligible PPP payroll costs and ERC eligible wages.
Please contact us if you have any questions, or to help determine if your business qualifies for the Employee Retention Credit.