Brochure

What You Need to Know About the Employee Retention Credit

calendar iconSeptember 6, 2022
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Employee Retention Credit

The Employee Retention Credit (“ERC”) is a refundable payroll tax credit in excess of the employer payroll taxes paid employees in 2020 and 2021.
The ERC is available to eligible employers who kept paying employees despite temporary business closures or revenue declines due to COVID-19 in 2020 and 2021.

Eligible Employer (Two ways to Qualify)

  • Employers who suffered disruptions to a more than nominal portion of their business due to COVID-19 Government Orders:
    • COVID-19 orders putting restrictions on travel, commerce, and group meetings.
    • COVID-19 orders on suppliers causing supply chain disruptions.
  • Employers who suffered Gross Receipts Test:
    • 2020: Employers of any size that had more than a 50% decline in gross receipts in any calendar quarter as compared to the same calendar quarter in 2019.
    • 2021: Employers of any size that had more than a 20% decline in gross receipts in quarters 1 – 3 in 2021 as compared to the same calendar quarters in 2019.

Industry Examples of Government Orders on Eligible Employers

  • Automotive Dealerships can qualify based on showroom restrictions and supply chain disruptions.
  • Churches & Religious Organizations can qualify based on restrictions made to holding services and other events.
  • Educational Institutions & Schools can qualify based on restrictions to teaching hours, capacity in classrooms, restrictions on fundraising events, cancellation of sporting events, cancellation of summer school activities.
  • Government Contractors can claim ERC. Our process includes an analysis of time and materials versus firm fixed price funding to analyze what portion of the ERCs stay with the taxpayer versus what has to be returned to the government.
  • Law Firms may qualify for ERCs due to court closures and jury trial restrictions.
  • Medical Organizations can qualify based on limitations imposed on waiting rooms and procedures.
  • Not-for-Profits can qualify due to restrictions on fund raising events.
  • Private Equity Funds portfolio companies owned by these funds may not have to be aggregated in computing the number of employees or applying the gross receipts test.

Filing Topics

Income Tax Effects: Wage deductions for income tax purposes must be reduced by the amount of the 2020 credit on the 2020 income tax return and by the amount of the 2021 credits on the 2021 income tax returns.

Gross Receipts Test / PPP Forgiveness: PPP forgiveness does not create gross receipts for purposes of the ERC eligible employer tests.

Monetization:

  • COVID-19 orders putting restrictions on travel, commerce, and group meetings.
  • COVID-19 orders on suppliers causing supply chain disruptions.

Professional Employer Organization (“PEO”): Companies that use a PEO can claim the four ERCs.

R&D Tax Credit: Wages included in the ERC calculation may not also be treated as qualified research expenses (“QREs”) in computing the research credit.