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What Is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a part of the Covid-19 relief legislation that congress passed in mid 2020 and has been consistently updating to meet the situation. It offers tax credits to businesses for keeping people employed through the pandemic, or who suffered significant losses as a result of closures. The most recent update was just last March. What’s the difference? The full details are provided by the IRS on their website, but let’s take a look at the most basic elements.

What’s New In The ERC?

The main difference is that the Employee Retention Credit is now consolidated with the PPP (or Payment Protection Plan). Previously, an employer could sign up for one, or the other, but not both. Congress removed the mutual exclusivity from legislation. It should be noted that a PPP borrower’s payroll that qualifies for loan forgiveness may not also be used for the ERC.

What Does This Mean For Your Business?

an infographic explaining some changes to the employee retention credit bill

click to see full sized

Like everything else, there’s a lot of complicated issues. In short, the ERC gives you tax credits if a government order forced your business to shut down. If your gross receipts suffered a significant drop, you can also apply for it. Now that congress removed the mutual exclusivity with the PPP, part of what you qualified for your PPP may now count against your ERC if you used it for non-payroll operations, but you can still apply for both. It can give you a little extra help. You must still follow the guidelines for how much can be used for non-payroll operations to qualify for loan forgiveness in the first place.

You should also note that the threshold of what qualifies as a serious drop also changed. Previously, the drop in gross receipts had to be as high as 50% to qualify. Congress lowered this limit to 20%. This makes it much easier to qualify for the tax credit.

Three Enhancements

In addition to the changes in qualification, congress added three enhancements. They are:

1. Employers who started their business in 2019 can apply for the ERC.

2. The 30-day wage limit has been removed to allow for bonuses to be included in the credit.

3. The ERC is now available to certain government-supported groups that were left out of the original act. These include governmental entities with separate tax-exempt status and/or state colleges, universities, or hospitals.

While these all significantly expand the number of qualifying businesses, we can probably expect more changes to the legislation in the coming months as the situation evolves.

Let Us Help You Out

Navigating the tax credits and laws is always a hassle when you’ve got other things to do. There’s always other things to do in a business, too, so maybe you need some extra help? We’ve got you covered. If you need some help working out your finances for these credits, don’t hesitate to get in touch with us. We’ll help answer any questions you have. If you want further help, you can schedule a time to meet and talk about it. We’re ready to help when you need it!

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