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Have You Recovered Your Overpaid Payroll Taxes Through the Employee Retention Credit?

September 9, 2022

Courtesy of SBAM Approved Partner, Ahola

What is the Employee Retention Credit (ERC)?

The ERC is a benefit under the federal Covid-19 stimulus plan where businesses can receive funding through tax credits on their Federal Form 941 if they meet certain conditions in 2020 and 2021.

It was originally passed under the CARES Act in March 2020 and was extended with changes to the rules under the Consolidated Appropriations Act in December 2020 and was extended again under the American Rescue Plan Act in March 2021.

How does a business qualify for the Employee Retention Credit?

A business may qualify if it experienced a suspension or shut-down of the business during any calendar quarter because of a governmental order due to COVID-19 or if it experienced a significant decline in gross receipts.

  • The rules for significant decline are different for 2020 and 2021.
    • For 2020, a business qualifies if the gross receipts for any quarter are down 50% or more as compared to the same quarter of 2019.
    • For 2021, a business qualifies if the gross receipts for any quarter are down 20% or more as compared to the same quarter of 2019.
  • If a business meets the above conditions for any quarter and continued to pay employees during that quarter, the business can receive tax credits applied to the qualified wages paid during the quarter. *Other qualifications must be met.

If a business received a PPP loan, can the business also take the Employee Retention Credit?

Yes. In 2020, businesses that received PPP loans were automatically ineligible for the ERC.  At the end of 2020 with the Consolidated Appropriations Act, this was reversed.  Businesses that received PPP loans can take advantage of the ERC.  The only stipulation is that the same wages used for PPP forgiveness cannot be used for the ERC.  Businesses may amend their 2020 Form 941 returns if they qualify for the ERC.

Are there rules that the business must meet when calculating the Employee Retention Credit?

There are other rules that must be followed.  The employer should review the rules and/or work with their accountant to make sure the credits are calculated correctly.

Some of the rules include the following:

  1. If the business received a PPP loan, then the wages used toward forgiveness of the loan cannot be used for the ERC,
  2. FFCRA wages cannot be used for the ERC, and
  3. Wages paid to owners and related individuals cannot be used for the ERC.

What should you do if you think you may qualify for the Employee Retention Credit?

You should work with their accountant or internal business tax professional to determine eligibility and calculate the credit amounts per quarter.

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