IRS Tax Credit: Employee Retention Credit (ERC)

by | Mar 30, 2021 | Blog, Covid-19 Updates

The Employee Retention Credit is a fully refundable tax credit for employers up to $5,000 for each full-time employee that the employers retained between March 13 and Dec. 31, 2020 and up to $28,000 for each retained employee between Jan.1 and Dec. 31, 2021 ($7,000 each quarter). Applications are allowed despite receiving PPP loans, but the ERC can only be claimed for qualified wages not treated as payroll costs in obtaining forgiveness of the PPP loans.

Most employers, including tax exempt organizations, can qualify for the credit. Qualification is determined by one of the following two factors:

  • A trade or business that was fully or partially suspended or had to reduce business hours due to a government order. The credit applies only for the portion of the quarter the business is suspended, not the entire quarter.
  • An employer that has a significant decline in gross receipts, by at least 50% of what they earned the same calendar quarter in 2019 (compared to 2020) and by at least 20% for 2021 (always compared to year 2019).

Employers will use Form 941 (Employer’s Quarterly Payroll Tax Return) to immediately claim the credit by reducing payroll taxes sent to the IRS, for the applicable quarters of 2021 in which the qualified wages were paid or will use Form 941-X (Adjusted Return) to retroactively file for year 2020.

It is important to underline that there is no size limitations in the number of the employees, and that if the credits exceed payroll taxes, employers can request a direct refund from the IRS.

ZOMMA Group has established a dedicated team that is continuously monitoring new guidance from SBA, Treasury, Congress, and IRS, to ensure we have the latest information when advising our clients.

To discuss your eligibility for the ERC and/or accurately calculate your potential credit, feel free to contact us.

luca.cancellieri@zommagroup.com