Many, and I mean many employers took advantage of the employee retention credit over the past couple of years. Once the ERC was made available to those who took a PPP loan by the Consolidated Appropriations Act in December of 2020, the floodgates opened.
When the qualifications for the ERC were adjusted for 2021 – the flow kept on going. Since then, we’ve seen things slow to a trickle, but there’s still opportunity there. If you haven’t reviewed the qualifications, you should.
2020 Employee Retention Credit Qualifications
For 2020, you had to have a decrease in gross receipts of more than 50% in any calendar quarter. Or, your business operations had to have been impacted by a government mandate. For Pennsylvania based businesses, this happened for most in March of 2020. To be eligible, you had to have paid wages during the quarter you experienced the decrease in gross receipts. If you have fewer than 100 employees, ALL wages paid can count. If you have more than that, you would have had to pay employees even though they weren’t working. If you received a PPP loan, you need to look at that too, as you can’t claim wages for both PPP forgiveness and ERC. Sounds daunting, but if you used the entire 24-week covered period, there’s probably a benefit there. Qualified wages during 2020 can get you a credit of up to 50% of wages paid, up to a max credit of $5,000 per employee.
2021 Employee Retention Credit Qualifications
For 2021, the qualifications were eased, and the benefit increased. You only need a 20% decrease in gross receipts (or a business disruption) and you can get up to a 70% credit of employee wages up to $7,000 per employee PER QUARTER. Plus, you can elect to use the prior quarter for the following quarter. Confusing? Also, bigger employers can see a benefit – the 100-employee limit for 2020 was increased to 500. Even though the ERC is only available for the first three quarters of 2021, there’s still a huge potential benefit. Many companies think that they made it through 2020 unscathed so there’s no benefit. You could be wrong.
So I just said that the 2021 ERC is only available for the first three quarters of 2021 – that’s unless you are a Recovery Startup Business. What’s a Recovery Startup Business? Well, it’s one that started during the recovery. So if you started your business after February of 2020, potentially all wages paid during 2021 are eligible – for all four quarters.
To recap …
- Were your gross receipts cut in half during any 2020 quarter?
- Were your business operations at least partially disrupted during 2020 or 2021 (and that includes not being able to operate due to suppliers not getting you materials, as well as quarantine time – as long as it was due to a governmental mandate)?
- Were your gross receipts less than 80% in any 2021 quarter when compared to 2019?
- Do you average less than 500 employees?
- Did you start your business after February of 2020?
If you can answer yes to any of these questions, there may be a benefit there. McKonly and Asbury is here to assist. Our deep experience in the Employee Retention Credit has allowed us to recover millions of dollars for businesses throughout Pennsylvania. We are here to assist. If you have questions, please feel free to reach out to Mark Heath, CPA, Director of Tax Services.