Employers – are you eligible for a refundable Payroll Tax Credit?

The Employee Retention Credit (ERC) is a refundable payroll tax credit that is available to help businesses impacted by the COVID-19 pandemic. It is available for qualified wages paid from March 13th, 2020 until December 31, 2021.

Businesses are eligible by showing either:

• A decline in gross receipts when comparing the applicable quarter to the same 2019 quarter, or
• Operations were fully or partially suspended by a COVID-19 governmental order
– Only wages paid during the suspension period qualify

The IRS has recently released guidance that provided a clearer definition for a partial shutdown and described the interaction between PPP loans and the ERC.

The Alabama Governor’s office has a recap of all applicable shutdown orders.

2020 Credit
• Maximum credit is 50% of up to $10,000 in qualified wages paid to an eligible employee
– Up to $5,000 credit per employee for the entire year
• Many businesses qualify under the shutdown test for at least a portion of 2020
• For businesses that do not qualify under the shutdown test, the decline in gross receipts must be at least 50% when compared to the same quarter in 2019
• After qualifying for a quarter by showing a 50% decline in gross receipts, the credit is available until the first quarter after revenues equal at least 80% of the 2019 applicable quarter revenue.
• The minimum amount of payroll costs needed to obtain PPP loan forgiveness are not eligible
– Qualified wages in excess of that amount are eligible for the ERC in the same quarter
• Employers with over 100 employees have certain considerations
• Aggregation rules between commonly controlled businesses apply

2021 Credit
• Maximum credit is 70% of up to $10,000 in qualified wages paid to an eligible employee
– Up to $7,000 credit per employee per quarter
• Decline in gross receipts must be at least 20% when compared to the same quarter in 2019
– Election to compare Q4 2020 gross receipts to Q4 2019 gross receipts for Q1 2021
– 20% decline is still applicable if using this election
• The minimum amount of payroll costs needed to obtain PPP loan forgiveness are not eligible
– Qualified wages in excess of that amount are eligible for the ERC in the same quarter
• Employers with over 500 employees have certain considerations
• Aggregation rules between commonly controlled businesses still apply

If you have questions about whether you qualify, please reach out to your Wilkins Miller contact. We would be more than happy to assist you in your analysis.