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Employee Retention Credit: Apply Before it’s Too Late

11/16/2021 Ross Walker

The Employee Retention Credit (ERC) remains a hot topic that has seen increased interest during the second half of 2021. The credit was created in March 2020 to encourage employers to keep their workforces intact during the COVID-19 pandemic.

On November 15th, 2021, President Biden signed H.R.3684 – Infrastructure Investment and Jobs Act (IIJA), which has a significant impact on the ERC. The IIJA terminates the Employee Retention Credit (ERC) created by the CARES Act earlier than originally planned. The American Rescue Plan Act (ARPA) had extended the credit to eligible employers for the third and fourth quarters of 2021. Under the new law, the ERC — which for 2021 is worth up to $7,000 per qualifying employee per quarter — is no longer available for wages paid after September 30, 2021 (rather than December 31, 2021).

ERC Essentials and background:

In December 2020, the Consolidated Appropriations Act (CAA) provided that employers that receive PPP loans still qualify for the ERC for qualified wages not paid with forgiven PPP loans. As a result, many employers, that initially concluded that they did not qualify, are now finding that they do in fact meet the eligibility requirements. The credit provides a direct benefit to the employer based on their eligible wages for each qualifying quarter.

How to qualify – there are two ways to qualify:

  1. The employer experienced a significant reduction in gross receipts during any calendar quarter of 2020 or 2021
    1. 50% reduction in 2020 when compared to the same quarter in 2019
    2. 20% reduction in 2021 when compared to the same quarter in 2019
  1. Partial or complete suspension of its business operations in 2020 or 2021 due to governmental order limiting commerce, travel, or group meetings.  This criterion has a wide net of interpretation due to the facts and circumstances nature of the guidance issued, allowing many companies to qualify even though on the surface they may think they wouldn’t.  If you did have to limit activities such as travel, b/c of governmental orders, or have other business impacts such as supplier constraints, we encourage you to give us a call to discuss your specific circumstances further.

How to apply/claim the credit – the following methods can be used to claim the credit:

  1. Claim the credit on an amended payroll tax return (941-X)
  2. Claim the credit on a timely filed 941
  3. Request advance payment of the credit for the current quarter with Form 7200 – then reconcile it on the timely filed 941

Potential Benefits – Below is a table showing the potential benefits offered by the credit, as well as some examples of the credit in practice from our clients:

ERC Examples – Below are a few real-life examples from VonLehman clients, that we were able to assist with claiming their credits.

  1. Manufacturing company with 106 employees with both PPP loans, a shutdown period, and a 2021 quarter qualifying on gross receipts – $735,000 credit
  2. Electrical contractor with 6 qualifying employees, one qualifying quarter in 2020, and two qualifying quarters in 2021 – $97,000
  3. Construction company with 230 qualified employees and two qualifying quarters in 2021 – $2.7 Million
  4. Medical practice with 55 employees and a partial suspension of business operations in 2020 – $255,000
  5. Education and childcare based nonprofit with 250+ employees and a suspension of business operations – $660,000

VonLehman has assisted over 60 companies in evaluating and claiming their ERC benefits resulting in a total credit claimed of $15.7 million.

In closing, it is important to remember that even though the new bill terminates Q4 filings, there are still seven quarters available for those who qualify. To find out more and learn if your organization is eligible, please complete the form below.

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