AAFCPAs’ update on the Employee Retention Credit (ERC) for 2020 and 2021

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AAFCPAs would like to remind clients of the availability of the Employee Retention Credit (ERC). The ERC can provide significant refundable payroll tax credits to eligible employers for both the 2020 and 2021 tax years. It is not too late to submit a claim for the ERC!

What Is the Employee Retention Credit?

The ERC is a fully refundable tax credit for eligible employers based on payment of qualified wages and health plan expenses. The ERC applies to qualified expenses paid after March 12, 2020 and through September 30, 2021, with some limited exceptions to apply for credits into the last quarter of 2021.

Who Is an “Eligible Employer?”

An eligible employer is any employer carrying on a trade or business during the ERC period (March 12, 2020, through September 30, 2021), that either:

  1. Fully or partially suspended operation during any calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  2. Experienced a “significant decline in gross receipts” during the calendar quarter. Please, note, this definition is different between 2020 & 2021. Read more about it in our previous blog.

What is the credit value?

In 2020 the credit value was up to $5,000 per employee, and in 2021 it was up to $7,000 per employee per quarter. A company with 20 employees could be looking at as much as $100,000 in 2020 and $140,000 per quarter in 2021, for a combined total of up to $520,000- in credits (so long as the organization qualifies for all quarters).

What does AAFCPAs advise?

AAFCPAs recommends that eligible companies file as soon as practical to prevent further delays with your credits. The IRS is currently projecting that processing times could take up to a year.

As with all tax credits, there are significant rules and potential pitfalls. If you have any questions about how these provisions affect your organization, please contact your AAFCPAs Partner.