Back To Top

Understanding Employee Retention Credits

YHB has an Employee Retention Credit (ERC) team that is here to help your business through all the trials and tribulations of calculating and filing for the ERC. We keep up to date with all the latest provisions to help you maximize any COVID relief funds!

The Employee Retention Credit (ERC) is a refundable payroll tax. The program is scheduled to be active for wages paid through September 30, 2021.

Am I eligible for ERC?  

All businesses, even if you received a PPP loan, are eligible if you were in operation as of March 13, 2020 and meet one of three criteria:

  1. Had either a full or partial suspension of operations during 2020 as a result of government shut-down orders due to COVID19 -OR-
  2. Experienced a significant decline in gross receipts (defined below).
  3. If you started a business after February 15, 2020 you may be eligible as a Recovery Startup business. (if you qualify under this criteria, you can claim the credit for 3rd and 4th quarter 2021)

What is a decline in gross receipts?  

Generally gross receipts include sales, revenue & most other income calculated using your tax accounting method. Eligibility should be checked for each quarter:

2020 – eligibility begins when your gross receipts of a single quarter during 2020 fell by 50% versus the same quarter in 2019 and ends following the quarter gross receipts returned to 80% in comparison to 2019.

2021 – gross receipts for a single quarter in 2021 decreased by 20% in comparison to the same quarter of 2019. An alternative method using preceding quarters is available.

What are qualified wages?

Qualified wages include compensation, certain taxable benefits and eligible health care costs up to $10,000 per eligible employee.  Most owner-employees and family members wages do not qualify.

What is a Full or Partial Government Shut Down?

If a government shut down order impacted your business in any way, you may qualify for a full or partial government shut down. Contact our team today and we can discuss the impact and whether or not you will qualify.

How much is the credit?

For wages paid in 2020: 50% of qualified wages paid, up to a maximum credit of $5,000 per employee / per year. For wages paid in 2021: 70% of qualified wages paid up to a maximum credit of $7,000 per employee / per quarter.

How do I claim the ERC?

Form 941 or Amended Form 941X.   Claiming the credit reduces the wages you can deduct. If you already filed your 2020 taxes and claim a 2020 credit, you will need to amend your 2020 income tax return.

Still have questions about this? We’re happy to help. Send us a note or contact your primary team member at YHB.

Read More Articles on the ERC

IRS issues ERC guidance as Congress mulls early termination

Major Updates to the Employee Retention Credit

Make the most of the Employee Retention Credit

About the Author

Amy Brown, CPA

Amy specializes in accounting, payroll and income tax for small business in addition to individual tax preparation and tax projections. She is also very knowledgeable in the cost and accounting requirements for government contractors. Amy has expertise with QuickBooks along with various integrating applications.