Formerly under the Employee Retention Credit (ERC), if a company received a Paycheck Protection Program (PPP) loan, the company was ineligible to receive the ERC. Now, thanks to the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act, a company can now receive the ERC for the last three quarters of 2020 as well as all four quarters of 2021.
Who is eligible?
As applied to 2020, eligible employers are those that (1) fully/partially suspended operations due to a governmental order and (2) had gross receipts in a quarter for 2020 that were less than 50% of its gross receipts for the same quarter in 2019.
As applied to 2021, eligible employers are those that (1) fully/partially suspended operations due to a governmental order and (2) had gross receipts in a quarter that are less than 80% of its gross receipts for the same quarter in 2019.
How much ERC can an employer receive?
For 2020, an employer can receive 50% of the first $10,000 of qualified wages per employee in the aggregate for all qualifying quarters ($5,000 for the full year in total, per employee).
For 2021, an employer can receive 70% of the first $10,000 of qualified wages per employee for all qualifying quarters ($28,000 for the full year in total, per employee).
Are you a small or large employer?
For purposes of the ERC, you are considered a small employer in 2020 if in 2019 you averaged 100 or fewer full-time employees. As applied to 2021, you are considered a small employer if you averaged 500 or fewer full-time employees in 2019. You are considered to be a large employer if you exceed either of these thresholds for their respective years.
What are “qualified wages”?
Per above, if you have qualified as a small employer, qualified wages are those that are wages and compensation, as well as qualified health plan expenses paid for employees for the quarter. For large employers, qualified wages are wages and compensation as well as qualified health plan expenses paid for employees but only for periods that the employee did not perform services for the employer.
What is different?
While an employer can now receive both a PPP loan and ERC credit, the wages used to qualify for a PPP loan cannot be used again to qualify for the ERC. There are three scenarios in which an ERC credit would now be available where formerly it would not: (1) a controlled group member received a PPP loan, but a member of the same controlled group that did not receive a PPP loan can now claim an ERC, (2) the employer’s qualified wages were not paid by the proceeds of the PPP loan, and (3) the employer’s qualified wages were covered by the PPP loan proceeds, but forgiveness was not obtained.
What are the next steps for employers?
Companies should revisit their 2020 2nd-4th quarter eligibility, as well as 2021 1st and 2nd quarters now that ERC and PPP rules have changed. Going forward, companies should plan accordingly and monitor eligibility for receiving both the ERC credit and a PPP loan, ensuring the same employee wages do not overlap both opportunities. The above discusses basis; however, there are multiple scenarios and ways to qualify. As it is a complicated area, make sure to reach out to a UHY representative to discuss further.