The deluge of legislative and regulatory rules designed to ameliorate the impact of the COVID-19 pandemic can confuse anyone. To help navigate the rules applicable to the Employee Retention Credit (ERC), we offer this simple summary of how the ERC has been expanded.
As discussed more fully in this article, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Relief Act), which was part of the Consolidated Appropriations Act, 2021, retroactively made the ERC available for 2020 to businesses that received a Paycheck Protection Program (PPP) loan, and also materially enhanced the ERC for the first two quarters of 2021.
The table below summarizes the other key differences between the ERC for 2020 and 2021.
|
Item |
2020 (All Year) |
2021(Q1 or Q2) |
|
Eligibility based on reduction in gross revenue |
Starts when there is a 50 percent drop in gross receipts in 2020 quarter compared to the same quarter in 2019; eligibility ends the earlier of (1) first quarter after the quarter in which the business has gross receipts of 80 percent of what the business had in the same quarter in 2019 or (2) December 31, 2020. |
Starts when there is a 20 percent drop in gross receipts in the applicable 2021 quarter compared to the same quarter in 2019. |
|
Ability to use the prior quarter to determine eligibility for the current quarter based on revenue drop |
No. |
Yes. 20 percent drop in 4Q 2020 compared to 4Q 2019 ensures eligibility for 1Q 2021. 20 percent drop in 1Q 2021 compared to 1Q 2019 ensures eligibility for 2Q 2021 (as well as 1Q 2021). |
|
Qualified wages limited to wages paid to employees not to work |
Average monthly FTE employee count (based on 130 hour month) in 2019 greater than 100. |
Average monthly FTE employee count (based on 130 hour month) in 2019 greater than 500. |
|
Amount of credit |
50 percent of wages paid during eligibility, up to wages of $10,000 per year per employee. |
70 percent of wages paid in the quarter, up to $10,000 of wages per employee per quarter. |
|
Annual cap |
$5,000 per employee. |
$14,000 per employee. |
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