Since the CARES Act introduced the temporary Employee Retention Credit (ERC) as a pandemic relief measure for eligible employers, we have carefully followed the subsequent amendments and expansions of the ERC to ensure that already overwhelmed employers can come to us for a streamlined experience in making the most of this credit.¹
Significantly, the ERC is not a loan or a grant—it is the Federal Government incentivizing employee retention by providing direct payments to an eligible employer based on the payments made to the retained employees. The amount at stake is considerable—up to $33,000 per employee when accounting for the maximum allowable amounts during 2020 and 2021:
2020: ERC can be claimed for 50% of qualified wages, up to $10,000 per employee paid between March 13 and December 31, 2020. Simply, the maximum ERC is $5,000 per employee.
2021: ERC can be claimed for 70% of qualified wages, up to $10,000 per employee paid per quarter of 2021. Simply, the maximum ERC is $28,000 per employee.
On August 4, 2021, the IRS released an advance version of Notice 2021-49 (the latest ERC guidance) specifically: (1) for employers that pay qualified wages after June 30, 2021, and before January 1, 2022, and (2) addressing miscellaneous items applicable to the ERC in both 2020 and 2021. First, key takeaways regarding the changes applicable to the third and fourth quarters of 2021,² include but are not limited to:
Finally, some of the more noteworthy miscellaneous ERC items addressed in the Notice with respect to both 2020 and 2021, include:
Additionally, the IRS clarified in its August 4, 2021 news release that:
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their employment tax returns (generally, Form 941) for the applicable period. If a reduction in the employer's employment tax deposits is not sufficient to cover the credit, certain employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.⁵
Importantly, we should note that this new guidance arrives at a particularly uncertain time, because:
We urge our readers to act quickly and contact their tax professional so that eligible employers do not miss out on much needed relief via the Employee Retention Credit. Contact our team at 410-497-5947 or fill out our brief contact form to schedule a confidential consultation.
Learn more about the Employee Retention Credits with Rebecca Sheppard and Matt Eddlemen on the latest episode of "A Way With Tax."