It’s Time to Rethink If the Employee Retention Credit Is Right For Your Organization
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Congress recently updated and expanded the guidelines for a COVID-relief measure called the Employee Retention Credit (ERC). If you follow the old guidelines for the ERC, you could accidentally disqualify your organization. You could still qualify even if your organization took a PPP loan or didn’t see a decline in revenue.
Here is an outline of the changes and the updated qualifications.
What is the ERC?
The ERC is a refundable employment tax credit that’s equal to cash. It was created in response to pandemic disturbances, and its purpose was to encourage businesses to keep their employees on the payroll.
The program ended in 2021, but organizations can retroactively claim the tax break for three years. Self-employed individuals do not qualify for the ERC and cannot claim the credit.
What changed?
Inclusion of the PPP Plan
Organizations that had already received a Paycheck Protection Plan loan are now eligible.
Increase in Maximum Number of Employees
Increase: +400
2020: 100 max
2021: 500 max
Increase in Credit max per employee
Increase: +8,000 per employee
2020: 20,000 per year per employee
2021: 28,000 per year per employee
Increase in Percent of qualified wages eligible for credit
Increase: +20%
2020: 50% of qualified wages ($10,000 per employee for the year, including certain health care expenses)
2021: 70% ($10,000 per employee per calendar quarter, including certain health care expenses) for qualified wages paid between January 1 and June 30, 2021
Change in Employment Tax Offset
Increase: +20%
2020: From Social Security
2021: From Medicare Tax
Does my organization qualify?
Business Qualifications
The updated qualifications for businesses include:
Must have paid income between March 13, 2020, and September 30, 2021,
Capacity restrictions or office closures at government sites resulting in project delays or inefficiencies
Office closures and a shift to remote work resulting in a productivity decrease
Cancellation of contracts due to inability to complete projects in a comparable manner
Reduced or shifted hours of operations
Inability to access equipment
Limited capacity to operate
Interrupted operations
Inability to work with your vendors
Nonprofit Qualifications
The updated qualifications for nonprofits include:
Must have paid income between March 13, 2020, and September 30, 2021,
Reduced hours of operation
Full or partial shutdowns
Interrupted operations
Reduced hours due to sanitation
Shifting delivery model for services (e.g., going virtual)
Limited capacity for programs
Decrease in community services
What’s next?
Have questions about if your organization can claim the Employee Retention Credit and how to best use it? Our team of business tax experts is here to help. Contact us today to get started.