COVID-19 relief legislation opens the door for both PPP and Employee Retention Credit

The Consolidated Appropriations Act of 2021 modifies the Employee Retention Credit

Section 206 of the Appropriations Act expanded the availability of the Employee Retention Credit (ERC) by removing the wording that made those who received Paycheck Protection Program (PPP) loans ineligible to receive the ERC.

Now that this roadblock is removed, small businesses should assess if they are eligible for the employee retention credit.  If they are, they need to consider if they had any qualifying wages that were not covered by a payroll protection loan as the ERC is not eligible for payroll costs that were used for PPP loan forgiveness (no double dipping).  Also, any wages for which certain other credits have or will be claimed may not be eligible.

To further complicate matters, the rules for determining eligible wages and computing the credit are different 2020 versus 2021.

March 12 to December 31, 2020 January – June 2021
Eligibility 1) Full or partial shutdown or,
2) 50% reduction in gross receipts for any quarter in 2020 vs same quarter in 2019.
1) Full or partial shutdown or,
2) 20% reduction in gross receipts for quarters in 2021 vs same quarter in 2019 or you have the option of looking at the preceding calendar quarter compared to the same quarter in 2019.
Qualified Wage Limit per employee $10,000 in 2020 $10,000 per eligible quarter in 2021
End of Eligibility At the end of the quarter when gross receipts for the quarter return to at least 80% of same quarter 2019. Eligibility is determined on a quarter-by-quarter basis.
Large company threshold – (qualified wages only include amounts paid to employees not working.) Greater than 100 full-time equivalent employees Greater than 500 full-time equivalent employees
Credit Percent of wages 50% 70%

Examples:

  1. A company has a reduction in gross receipts of 50% in Q2 of 2020 when compared to Q2 of 2019, 79% for Q3 of 2020 compared to Q3 of 2019 and 85% Q4 compared to Q4 of 2019. All three quarters are eligible for the retention credit. If the Q3 2020 reduction had been 85%, then only Q2 and Q3 would have been eligible.
  2. A company has one eligible employee with 10,000 of eligible wages in each of the following quarters – Q3 2020, Q4 2020, Q1 2021 and Q2 2021. None of the funds were used for PPP Loan forgiveness.Assuming the employer meets the reduction thresholds the employer is eligible for a retention credit for 2020 calculated as follows:
    $10,000 times 50% = $5,000The employer will also be eligible for a retention credit for 2021 calculated as follows:
    $20,000 times 70% = 14,000

Please contact Desroches Partners for more details on whether you qualify for the retention credit at 713-360-0800 or your client lead.

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