-You may be eligible for a credit up to $33,000 per employee
The ERC provides an opportunity you don’t want to pass up! The
qualifications and calculations are complex, and the new interplay with
the PPP only adds to that complexity, but Boos & Associates, PC is
here to help! Our dedicated ERC and PPP teams are always up to date on
the latest guidance and are experienced in helping businesses achieve
the best possible benefit(s).
In a recent news release, the IRS implored businesses to take advantage
of the newly enhanced and highly advantageous Employee Retention Credit
(ERC), designed to provide direct aid and incentive to businesses that
keep their employees on payroll during the pandemic. If your business
has been impacted by the government shutdowns or taken a financial hit
during 2020 or 2021, you may be eligible for a credit of up to $33,000
per employee! Do not miss out on this opportunity!
What is the ERC?
The ERC is a refundable payroll tax credit for wages paid and health
coverage provided by an employer whose operations were either fully or
partially suspended due to a COVID-19-related governmental order or that
experienced a significant reduction in gross receipts. The ERC can be
claimed quarterly to help offset the cost of retaining employees.
Employers may use ERCs to offset federal payroll tax deposits, including
the employee FICA and income tax withholding components of the
employer’s federal payroll tax deposits. Unlike the PPP, which was on a
first-come first-serve basis, the ERC can be claimed up to three years
from the date in which your quarterly payroll return was filed.
Who is eligible for the ERC?
To claim the ERC in any given calendar quarter, organizations
must meet one of the following criteria during that quarter:
- Operations were fully or partially suspended as a result of orders
from a governmental authority limiting commerce, travel or group
meetings due to COVID-19; or
- The organization experienced a significant decline in gross receipts
during the calendar quarter compared to 2019. Specifically, for 2020,
gross receipts for the 2020 quarter decline more than 50% when
compared to the same 2019 quarter. Eligibility for the credit
continues through the 2020 quarter in which gross receipts are greater
than 80% of gross receipts in the same 2019 quarter.
- For 2021, the gross receipts eligibility threshold for employers is
reduced from a 50% decline to a 20% decline in gross receipts for the
same calendar quarter in 2019, and a safe harbor is provided allowing
employers to use prior quarter gross receipts compared to the same
quarter in 2019 to determine eligibility.
- Employers not in existence in 2019 may compare 2021 quarterly gross
receipts to 2020 quarters to determine eligibility.
Can you claim the ERC if you receive a PPP loan?
Yes! As described above, one of the most favorable provisions in the
new law allows taxpayers to receive PPP loans and claim
the ERC. This overlap was not permitted when the CARES Act was
originally enacted, and organizations in need of cash infusions during
2020 more frequently turned to PPP loans as a source of funds rather
than the ERC. Importantly, the Relief Act makes the ability to claim the
ERC and receive PPP loans retroactive to March 12, 2020. As a
result, organizations that received PPP loans in 2020 (and/or will
receive new loans in 2021) can now explore potential ERC credits for
2020 and 2021.
Which wages qualify for the ERC?
The answer depends on an organization’s employee count. Eligible
organizations that are considered “Large Employers” can only claim the ERC
for wages paid to employees for the time the employees are not
. This aligns with the purpose of the ERC,
which is to encourage employers to retain and compensate employees during
periods in which businesses are not fully operational.
Smaller eligible organizations may claim a credit for all
wages paid to employees. The Relief Act increases the
threshold used to determine Large Employer status for 2021 claims to an
employee count of more than 500 (for 2020, it is more than 100). This
favorable change broadens the number of eligible organizations that can
claim the ERC for all wages paid to employees, including wages paid to
employees who are providing services. Importantly, qualified
healthcare expenses count as wages.
Boos Insight: If you furloughed your employees but continue to
pay their health insurance, you can claim the ERC. Furloughed employees
do not have to receive wages—health care expenses alone qualify as wages
for purposes of the ERC.
How is the determination of Large Employer status made?
Large Employer status is determined by counting the average number of
full-time employees employed during 2019.
For this purpose, “full-time employee” means an employee who, with
respect to any calendar month in 2019, worked an average of at least 30
hours per week or 130 hours in the month. This is the same definition
used for purposes of the Affordable Care Act. Importantly, aggregation
rules apply when determining the number of full-time employees. In
general, all entities are considered a single employer if they are a
controlled group of corporations, are under common control or are
aggregated for benefit plan purposes.
Organizations that operated for the entire 2019 year compute the average
number of full-time employees employed during 2019 by following the
Step 1: Count the number of full-time employees in each calendar month
in 2019. Include only those employees that worked an average of at
least 30 hours per week or 130 hours in the month.
Step 2: Add up each month’s employee count from Step 1 and divide by
Boos Insight: Part-time employees that work, on average,
less than 30 hours per week are not counted in the determination of
Large Employer status. Omitting part-time employees from the
computation should result in more organizations having 500 or fewer
full-time employees and, therefore, being able to claim the ERC for all
wages paid to employees in the first two quarters of 2021 (assuming
eligibility criteria are met).
Can the same wages be used for the computation of both the ERC and
the amount of PPP loan forgiveness?
No. Simply put, there is no double dipping. Wages used to claim the ERC
cannot also be counted as “payroll costs” for purposes of determining
the amount of PPP loan forgiveness, and organizations that want to
benefit from the ERC and have their PPP loans fully forgiven will need
to have sufficient wages to cover both. To the extent an organization
does not have sufficient wages, strategic planning will be needed to
generate maximum benefits.
of ERC Changes
3/13/20 – 12/31/20
3/13/20 – 12/31/20
with PPP Loan
No ERC if a
forgiven PPP loan was received
that receive a PPP loan can claim the ERC, but double dipping
is not allowed
Creditable Wages per Employee
of eligible wages, up to $5,000 per employee
eligible wages, up to $5,000 per employee
of eligible wages, up to $14,000 per employee
to be Considered a “Large Employer” (based on average
full-time employees in 2019 and considering aggregation
- Employers that previously reached the credit limit on some of their
employees in 2020 can continue to claim the ERC for those employees in
2021 to the extent the employer remains eligible for the ERC.
- Qualification for employers in 2021 based on the reduction in gross
receipts test may provide new opportunities for businesses in impacted
- Eligible employers with 500 or fewer employees may now claim up to
$7,000 in credits per quarter, paid to all employees, regardless of
the extent of services performed. This rule previously was applicable
to employers with 100 or fewer employees and a maximum of $5,000 in
credit per employee per year. Aggregation rules apply to determine
whether entities under common control are treated as a single
This may provide significant opportunities for your company. However,
the interplay between the Consolidated Appropriations Act, the CARES
Act, the American Rescue Plan Act, and various Internal Revenue Code
sections is nuanced and complicated so professional advice may be
If you think your business can benefit or is interested in claiming the
Employee Retention Credit, BOOS & ASSOCIATES is here to help! To
inquire more information please email us at firstname.lastname@example.org.