Don’t Snooze on the Employee Retention Credit!

As we approach the end of the 1^st Quarter 2021, it is important to review your business’s eligibility for the 2021 Employee Retention Credit (ERC).  The ERC is a powerful payroll tax credit that is creating cash flow for many American businesses.  The Consolidated Appropriations Act, signed on December 27, 2020, changed the rules, allowing borrowers of PPP loans to also take advantage of the ERC.  Here is a refresher on how the credit works this year.

How Do I Qualify?

Gross receipts for each calendar quarter in 2021 are compared to the same quarter in 2019.  If 2021 revenue is less than 80% of the same quarter in 2019 (i.e., at least a 20% decline in gross receipts), that quarter becomes an eligible quarter for ERC.  The credit is equal to 70% of eligible wages paid up to $10,000 per person per eligible quarter in 2021.  That’s up to a $7,000 credit per person per eligible quarter.  If your business does not qualify by way of the decline in gross receipts in the current quarter, you can look back one quarter (Q4 2020, for example) and if your receipts were down at least 20% last quarter compared to the same quarter in 2019, you qualify this quarter.

Even if your business does not qualify in either the current or previous quarter as a result of a 20% decline in gross receipts, you may still qualify if you are under government-ordered restrictions on operations due to Covid-19.  In this case, only wages paid during the period of restriction qualify for ERC. 

Don’t Snooze, Take the Credit Now!

If you are eligible, you can take the credit on your first quarter form 941 which is due April 30, 2021. If you do not take the credit now, you may amend your 941 later. Taking the credit now will increase your cash flow sooner rather than later.

Calculating ERC can be tricky, especially if you have a PPP loan during a period that is eligible for ERC.  Wages used in the PPP Loan Forgiveness calculation cannot also be used to calculate the ERC.  We can help you create a strategy to maximize your Employee Retention Credit, while still focusing on full PPP loan forgiveness.  It is also not too late to take the credit for 2020 if you qualify.  The eligibility rules and credit calculation are different than 2021, but the 2020 credit is also generating significant cash for qualified businesses.

How KatzAbosch Can Help

Our dedicated PPP and ERC teams are well-versed in the latest guidance and can help you achieve the best possible long-term benefit to your business. If you would like to discuss your ERC and PPP forgiveness strategy, please mention it to your KatzAbosch representative. Visit our PPP consulting services to learn more.