Breaking Down the Employee Retention Credit (ERC)

April 2021 — By Michelle McCullough

The ERC is rewarding companies that, despite all of the COVID-19 challenges, elected to keep their employees. Here’s the 1-2-3 high level overview.

ONE – what is the ERC?

“The Internal Revenue Service urges employers to take advantage of the newly-extended employee retention credit, designed to make it easier for businesses that, despite challenges posed by COVID-19, chose to keep their employees on the payroll.” 

Additional good news here is that the credit could yield up to $5,000 per employee in 2020 and $28,000 per employee 2021, and the number of employees a company has does not affect whether a company can claim this credit. 

TWO - how do you know if you are eligible?

Any private-sector businesses or tax-exempt organizations that carries on a trade or business that meets either of these criteria:

  • A business that experienced a significant decline in gross receipts during any quarter
  • A business that was fully or partially suspended due to orders from the Federal or state government limiting commerce, travel, or group meetings due to COVID-19

THREE – how do they define a “significant decline” and “fully or partially suspended?”

Decline defined = 

  • In 2020 your gross receipts declined by 50% of what they were the same calendar quarter in 2019
  • In 2021 your gross receipts declined by 20% of what they were the same calendar quarter in 2020

Suspended = 

Occurs if an appropriate governmental authority imposes a restriction on business operations so that:

  • A business must cease ALL operations
  • A business can still function with some but not all of its normal operations

These slides can walk you through all of this in more detail and help you calculate your potential credit. If you need help walking through any of this and would like some direction on applying for the PPP or ERC, please contact our NAVIGATE CFO Services.