Is your company eligible for
Employee Retention Credits?

Written by
Rondi Chapman

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Are you wondering if your company may be eligible for Employee Retention Credits?

With many businesses considering the financial impact of lockdown measures taken in the last year, we wanted to shine a light on a way of claiming some of your employee costs incurred during the Covid pandemic: Employee Retention Credits.

What is the Employee Retention Credit (ERC)?

According to the IRS, the Employee Retention Credit (ERC) is a fully refundable tax credit for employers equal to 50 percent for 2020 and 70 percent for 2021 of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees.’1

ERC is part of the government’s Coronavirus Aid, Relief, and Economic Security (CARES) act, a $2 trillion economic stimulus package that was introduced in March 2020 in response to the pandemic.

The two ERC programmes – one for 2020, one for 2021 – are designed to help companies faced with economic hardship retain employees rather than laying them off to save costs. Here’s how it works:

  • 2020 ERC program: If applying for the 2020 calendar year, for the first quarter you qualify for, receipts must be down 50% or more, then you qualify for the quarters through to the quarter that is down to 80%.
  • 2021 ERC program: Qualifications are considered in comparison to the same quarter in 2019 (as 2020’s revenues were affected by the pandemic). Your revenue must be 80% or less of the same 2019 quarter (gross receipts down).

What do you get if you qualify?

For 2020, if you have paid an employee up to $10k in qualified quarters, you get up to $5k back per employee. For 2021, the credit is $7k per employee paid $10k per quarter.

Maximum Benefits:

  • For 2020 wages – Up to $5,000 per employee
  • For 2021 wages – Up to $28,000 per employee

How do you know if you’re eligible for ERC?

The IRS states that eligible employers are those that carried on a trade or business during the calendar year 2020, including tax-exempt organizations that either:

  • Fully or partially suspend operation during any calendar quarter due to Covid-related government orders which limit commerce, travel, or group meetings
  • Experience a significant decline in gross receipts during the calendar quarter1

There are some restrictions on who qualifies as an employee. For LLCs, the business owner is excluded.  For all organizations, there are limitations on owner-related personnel.  There are also qualifications based on an organization’s total number of employees.

Another tricky factor is that you can have both a Payroll Protection Program (PPP) loan and Employee Retention Credits but not for the same wages.

Plus, wages over 100K per annum don’t count for PPP but do for ERC, so there’s an element of math tetris involved in calculating the ERC credits.

For more information on how to determine if you are eligible to apply for ERC for 2021 or for help calculating what you might be eligible for, check out this Insource Insights article and contact us.

How we can help

As you can see, the ERC process is quite complicated. The good news is we love math Tetris and are on hand to look at the review for your quarters. An initial call to determine eligibility is complimentary. If you qualify, you’ll receive a contract for services to calculate .credits available to you.

Although ERC filing isn’t done by Insource, we can also help you work with your payroll company to file the credits.

For more information, email us at insource@insourceservices.com, or call (781) 235-1490.


References

(1) IRS Newsroom – ERC FAQs