Although other forms of COVID pandemic assistance received more initial fanfare, employers should also not overlook the federal tax relief available. One important initiative is the “Employee Retention Credit” (ERC), a credit for those employers who retained employees during the height of the pandemic. The Internal Revenue Service (IRS) has already processed $58 billion in ERC claims.
In September, the recent infrastructure bill retroactively eliminated the ERC for most businesses for the last quarter of 2021. However, eligible employers can still file amended tax returns that would enable them to receive ERCs for 2020 and most of 2021 if they haven't already done so.
Therefore, in the next three posts, we'll examine ERC eligibility, why some who claimed this credit are now under scrutiny, and what to do if you're on the receiving end of an ERC audit.
WHAT IS THE EMPLOYEE RETENTION CREDIT?
The 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allowed employers to claim an “Employee Retention Credit” on taxes for every employee they kept on their payroll during the height of the pandemic. The ERC has been since modified by the Internal Revenue Code and other COVID measures (including the American Rescue Plan Act of 2021).
THE EVOLUTION OF THE ERC
The original ERC allowed employers to receive a tax credit of 50% of qualifying wages, including employees' salary and health care, up to a total of $10,000 for each employee retained from March 13, 2020, to December 31, 2020.
Over time, the ERC was expanded to allow previously ineligible employers (who received Paycheck Protection Program loans) to apply. The laws extended the time frame to cover wages paid through December 31, 2021. These expansions also increased the maximum credit to $7,000 for each employee per quarter.
As discussed above, in September, the credit for the last quarter of 2021 was eliminated for most businesses.
WHO IS ELIGIBLE?
ERC eligibility depends on the relevant period.
Under the original ERC, employers (other than self-employed individuals and state entities) could claim the ERC credit if they had to partially or fully suspend business to comply with a government order relating to COVID. They were also eligible if their gross receipts were less than 50% of what they'd made during a comparable quarter in 2019.
The revised ERC expanded eligibility to employers who were closed under a government order or if they'd earned substantially less than in 2019.
Companies designated as “recovery startups,” small businesses that began on or after February 15, 2020, still may qualify for an ERC through the end of 2021.
AN EXPERIENCED TAX ATTORNEY CAN MAKE ALL THE DIFFERENCE
If you have questions regarding applying for ERC or any other employee-related tax concerns, Maryland tax attorney Juda Gabaie specializes in helping employers in determining if they qualify for ERC. Gabaie & Associates has offices in Baltimore, Annapolis, Rockville, Columbia, and Frederick should employers want to meet in person to discuss ERC issues. We can review employee eligibility so you and your staff receive the benefits programs such as these provide while you comply with the law and reduce the likelihood of an audit. Contact Gabaie & Associates, LLC today by calling us at (410) 358-1300 or by sending us an email to schedule a free consultation.