The Employee Retention Credit (ERC) is a tax credit that compensates businesses who kept employees on their payroll during the pandemic. The credit was introduced as part of the CARES Act in 2020 and was reinstated for the 2021-2022 tax years as part of the Consolidated Appropriations Act 2021.
While the ERC can be a valuable tool for businesses looking to retain employees during the ongoing COVID-19 pandemic, navigating the complexities of the credit can be challenging. In this blog, we will explore the complexities of ERC reinstatement and guide how businesses can navigate the process.
The Employee Retention Tax Credit Reinstatement Act
The Employee Retention Tax Credit (ERTC) was a vital aspect of COVID-19 relief legislation but initially expired at the end of 2020. In response to the continued economic hardships of the pandemic, on December 7, 2021, the United States House of Representatives introduced the Employee Retention Tax Credit Reinstatement Act. This bipartisan bill extended and expanded the ERC.
If you reviewed your ERC eligibility in 2020 or 2021, you need to check again because the law is much more expansive than previously. The ERC was extended and expanded under the Consolidated Appropriations Act in 2021 and the American Rescue Plan Act in 2021, examples include:
- The revisions expanded eligibility of Recovery Startup Businesses, which are defined as enterprises that began operations after February 15, 2020, and did not have combined revenue of more than one million dollars from all previously held businesses in any of the three years. RSBs may receive the ERC in Q4 of 2021 regardless of whether revenues declined or whether they experienced a partial shutdown of business operations.
- Initially, the 2020 ERC capped recovery at $5,000 per employee per year. But in 2021, the cap expanded to $7,000 per employee per quarter in Q1, Q2, and Q3 of 2021.
- Business owners may also qualify as “severely financially distressed employers” if gross receipts declined by at least 80% in a particular quarter compared to the same quarter in 2019.
- Initially, one could not receive PPP and ERC. However, this was amended so that employers can receive both, provided the same wages are not “double-dipped.”
Remember, the Employee Retention Credit is refundable, which means businesses can receive a refund for any excess credit beyond their tax liability. But you do need to file Forms 941-X accurately and truthfully — which is why we’re here to help.