Employee Retention Credit (ERC)

Your business can receive a refundable credit against payroll for employers that are hurt by the coronavirus but retain their employees. The ERC would be for 50% of eligible employee wages (up to $10,000), including health benefits, paid between March 12, 2020 and January 1, 2021.

The ERC is available to all employers regardless of size, including tax-exempt organizations up to $5,000 per employee. There are only two exceptions: State and local governments.  The number of full time employees your business has will determine what wages are considered eligible wages. FFCRA wages and wages paid to a related individual do not qualify as eligible wages.

**Your business is not eligible for the ERC if it applied for and received a Payroll Protection Program Loan**

**If your PPP loan is returned before May 14^th, you ARE eligible for the ERC**

Two scenarios for being eligible:

• For any quarter in 2020, the operation of the employer’s “trade or business” is “fully or partially suspended” during the quarter due to “orders from an appropriate governmental authority limiting commerce, travel or group meetings (for commercial social, religious, or other purposes, due to COVID-19).
• For any quarter in 2020, the “gross receipts” from the “trade or business” of the employer are less than 50% of what they were for the same quarter in 2019. Once this happens, every quarter is an “eligible quarter” until the END of the quarter in which the business’s receipts have returned to at least 80% of what they were for the same quarter in 2019.

Scenario #1:

• All THREE of the following have to be met to be an eligible employer.
  • Orders have to come from the federal government, or a state or local government that has jurisdiction over the business
  • The orders have to limit commerce, travel, or group meetings due to COVID-19
  • The orders must affect an employer’s operation of its trade or business
• Examples of partially suspended businesses
  • Restaurants whose physical doors are closed by government order but are still doing take out or delivery
  • Brick and mortar retailer whose physical doors are closed but still have online sales
• If you operate through multiple locations, and you are shut down in some but not all locations, the entire business is treated as having been shut down.
• Can only receive credit on wages paid during the part of the quarter the business was shut down.

Scenario #2:

• Gross receipts for each quarter of 2020 are compared to the same quarter in 2019. If receipts drop by more than 50%, you count that quarter. Then, you keep counting every quarter until the END of the first quarter in which receipts climb back to at least 80% of what they were for the same quarter in 2019.
• Receipts = total sales less returns and allowances and total income from services provided
  • Also includes interest, dividends, rents and royalties, and sale of assets (reduced by the basis of such assets). Gross receipts are not reduced by the cost of goods sold.
  • If business started in Q2 of 2019, use that quarter’s receipts to compare to Q1 of 2020
  • If you started part-way through the quarter, extrapolate the receipts to what they would have been for a full quarter.
  • IRS is still working on guidance for what receipts are for a non-profit

Eligible Wage Considerations

• If you have LESS than or equal to 100 average monthly full time equivalents (FTEs) for 2019, then ALL wages paid to an employee during an eligible quarter can give rise to a credit, even if the employee is currently at work.
• If you have MORE than 100 average monthly FTEs for 2019, you MUST be paying an employee to NOT work, either because business has been shut down or receipts have dropped significantly to have eligible wages to give rise to a credit.
• You can increase the wages paid to an employee by the employee’s allocable share of certain health care costs
  • Includes cost incurred by the employer and any pre-tax employee contributions
• Severance wages are not qualified wages
• If you have more than 100 FTEs, payments made for pre-existing accrued vacation, sick time, or other personal leave wages are not qualified wages, as they were accrued at a time when the employee was providing services
• Wages paid to a related individual – or in the case of a corporate employer, someone related to the majority owner of the corporation – are not eligible wages
  • A related individual is any employee who has any of the following relationships to the employee’s employer
    • A child or descendant of a child
    • A brother, sister, stepbrother, or stepsister
    • The father or mother
    • A stepfather or stepmother
    • A niece or nephew
    • An aunt or uncle
    • A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

If you have questions as it relates to ERC, FFCRA or the CARES Act, you can visit our COVID-19 Updates page, our Resources page, or you can contact our experts today. We’re here to help.