Employee Retention Credit (ERC)

On December 27, 2020, the Consolidated Appropriations Act of 2021 was signed. This provided updates and extensions to Employee Retention Credits (ERC). Employers that received Paycheck Protection Program (PPP) loans can also qualify for the ERC for wages that are not paid for with forgiven PPP loans. Prior rules only allowed employees to claim up to $5,000 per employee per year. With these updates employers can now claim a credit up to $7,000 per employee per quarter. In this post, life insurance professionals from Rose Street Advisors discuss the changes to ERC further. 

Is your organization eligible? If so, how much credit will you receive?

ERCs allow you to offset your payroll taxes and receive cash back for credits above your payroll tax liability. This credits serve as a refund. Example: If you qualify for $50,000 in credits and only owe $8,000 in payroll taxes, you receive a $42,000 refund.  Previously, the tax credit was equal to 50% of wages and compensation, up to $10,000 in wages for the year (2020). With the ERC updates, it made Q1-Q2 2021 equal to 70% of wages and compensation, up to $10,000 in wages for each quarter. This equals a max potential credit of $14,000 per qualified employee for Q1-Q2 2021 in addition to the 2020 credits. No limits exist on how you can spend your refund. •  Employers are eligible if their business operations have been fully or partially suspended as a result of a government order

OR

• For 2020, if the business experienced a 50% reduction in quarterly receipts compared to a base period

OR

• For 2021, if the business experiences a 20% reduction in quarterly receipts compared to a base period Previously, businesses with 100 or less full-time employees, could take the tax credit for all employees. That number has changed to 500 full-time employees. Under 500 full-time employees: The tax credit is for wages paid to all employees.  • For example, if you have 490 full-time employees and 200 additional part-time employees the entire payroll is eligible up to the maximum credit per employee. Over 500 full-time employees: The tax credit is for wages paid to employees not working. There is no limit on the number of employees or the size of your company that prevents you from taking your credit.