tax credit

Richard A. Huffman, CPA, MST
Tax Partner

By retaining employees during the pandemic, your company may be eligible for a payroll tax credit of up to $5,000 per employee in 2020 and $28,000 per employee in 2021.

The employee retention tax credit (ERTC) is a fully refundable payroll tax credit for employers who meet certain requirements that is based on qualified wages paid between March 13, 2020 to December 31, 2021.

The qualifications and credit thresholds are segmented into two time frames, March 13, 2020 to December 31, 2020 and January 1, 2021 to December 31, 2021. The two separate qualifying periods are summarized as follows:

3/13/2020 – 12/31/2020 time period:
In order to qualify need to meet only one of the following tests:
Business operations partially or fully suspended due to COVID-19 orders from an appropriate government authority
OR 2020 quarterly gross receipts declined by at least 50% from the comparable quarter in 2019.

The credit is determined based on qualifying per employee wages as follows:
Up to $5,000 for the year for each full-time equivalent employee if averaged less than 100 full-time employees
Up to $5,000 for the year for each full-time equivalent employee you retained who was not working if more than 100 full-time employees

The refundable tax credit is 50% of up to $10,000 of qualifying wages per a full-time equivalent employee (FTE) for the 2020 year (maximum $5,000 per employee 2020 credit).

1/1/2021 – 12/31/2021 time period:
In order to qualify need to meet only one of the following tests:
Business operations partially or fully suspended due to COVID-19 orders from an appropriate government authority
OR 2021 quarterly gross receipts declined by at least 20% from the comparable quarter in 2019.

The credit is determined based on qualifying per employee wages as follows:
Up to $7,000 per quarter for each full-time equivalent employee if averaged less than 500 full-time employees
Up to $7,000 per quarter for each full-time equivalent employee you retained who was not working if more than 500 full-time employees

The refundable tax credit is 70% of up to $10,000 of qualifying wages per a full-time equivalent employee (FTE) per a quarter for the 2021 year (maximum $28,000 per employee 2021 credit).

Every business should evaluate whether they qualify for the substantial benefits provided by the ERTC.

For additional information you can visit the IRS website at https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act. We also recommend you discuss with your payroll provider as the credits are reported on your payroll tax filings. If you need additional assistance, we can connect you with a specialist who can help.