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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.