This resource does not constitute legal advice. Companies should consult with their own legal counsel before determining how best to operate their business pursuant to federal, state and local orders affecting businesses.
Changes made at the end of 2020 made this tax credit more beneficial for companies. And unlike the previous iteration, the changes allowed businesses to pursue both the tax credit and the Paycheck Protection Program forgivable loan.
Some guidelines, from the U.S. Chamber of Commerce:
- Applies only to companies with 500 or fewer employees.
- Must have had a 20%-plus decline in gross receipts in one quarter of 2020 compared to the same quarter in 2019.
- Companies that had one 2020 quarter with gross receipts 80% higher than the same quarter in 2019 are not eligible.
- Employers cannot claim the same credit for the Work Opportunity Tax Credit for the same employee in the same period.
- Employers that receive a PPP loan may not use the PPP funds and the Employee Retention Tax Credit to cover the same payroll costs.
The Credit's Value
Wages may also include a portion of the cost of employer-provided health care. But it does not include paid sick leave or family leave, if the employer was reimbursed under the Families First Coronavirus Response Act.
The ERTC has different rates for 2020 and 2021:
- Applies to wages paid after March 12 and before January 2021
- Accounts for 50% of qualifying wages up to $10,000. Up to $5,000 per employee could be credited back to employers.
- Applies to wages paid after January 1 and before July 1, 2021.
- Applies to 70% of qualifying wages up to $10,000 per quarter, or a maximum of $14,000 per employee through June 30 (2 quarters at $7,000 each).
Self-employed individuals cannot take the tax credit for their own earnings but may use it if they have employees.
To Receive the Credit
It is refundable, which means it is applied against an employer’s portion of quarterly payroll taxes.
If an employer’s tax deposits do not cover the credit cost, employers can submit an IRS Form 7200.