The Consolidated Appropriations Act that the President just signed into law GREATLY enhances the Employee Retention Credit (ERC) that was created under the CARES act. Under the new stimulus bill the ERC is improved in different ways for 2020 and for 2021. We will share information on the 2021 ERC as information becomes available but understanding the retroactive ERC credit for 2020 is more urgent since it may impact PPP loan forgiveness, which many businesses were planning to submit in January.

Here are the important highlights of the proposed changes to the employee retention credit for 2020:

Retroactive Employee Retention Credit (ERC) for 2020

  • Business are allowed to claim both the ERC and the PPP loan. Previously under the CARES Act the ERC was not allowed when a business received the PPP funds.
  • Business can retroactively go back and claim the ERC credit for qualifying wages paid between March 12, 2020 to December 31, 2020
  • The credit is equal to 50% of qualifying wages paid up to a maximum of $10,000 in wages per employee for a maximum tax credit of $5,000 per employee
  • Businesses Qualifying to claim the ERC are any business that meets either of these qualifications
    • 1) Had their business fully or partially suspended under a government order at any time
      • Please be aware that “essential” businesses that were not fully suspended due to the government stay at home order may still qualify as partially suspended if more than a nominal portion of the business operations were suspended or if the business was materially impacted by suspended suppliers of goods or materials to the business.
    • 2) Experienced a revenue decrease of more than 50% in any quarter in 2020 compared to the same quarter in 2019
  • If your business meets either scenario #1 or #2 please let us know ASAP
    • For businesses that meet the qualification under #1 we will need to know the specific dates that the government order suspended your business. Only the wages you paid during the dates of the government order qualify for the ERC credit.
  • Wages that are used to claim the ERC tax credit cannot also be used to claim forgiveness on your PPP forgiveness application. Therefore, it is important that you let us know that you qualify to retroactively claim the ERC tax credit so that we can coordinate the ERC credit with your PPP loan forgiveness application.