The Employee Retention Credit (ERC) is a lifeline for many businesses affected by the COVID-19 pandemic. It provides eligible employers with a valuable tax credit for retaining employees during the challenging times of 2020. However, for those who also received funds through the Paycheck Protection Program (PPP), there are specific rules and guidelines to consider when claiming the ERC. This blog post will provide essential information and guidance for employers seeking to claim the Employee Retention Credit for 2020, including eligibility rules for PPP borrowers. Here’s a write-up about claiming Employee Retention Credit 2020, an essential guide for PPP Borrowers.
Understanding the Employee Retention Credit (ERC)
The ERC was part of the CARES Act in March 2020 to help businesses retain their employees during the economic downturn caused by the pandemic. The credit is based on a percentage of qualified wages paid to eligible employees, allowing businesses to offset their federal payroll tax liabilities.
Eligibility for claiming Employee Retention Credit: To claim the ERC for 2020, employers must meet specific criteria, including:
- Partial or total suspension of operations: The employer must have experienced either a full or partial suspension of operations due to government orders related to COVID-19 or have experienced a significant decline in gross receipts.
- Size of the business: The ERC is available to employers of all sizes, including tax-exempt organizations.
- PPP loans: Previously, employers who received a PPP loan were not eligible for the ERC. However, recent legislation has made retroactive changes to allow PPP borrowers to claim the ERC, but with some restrictions.
Eligibility Rules for PPP Borrowers: Employers receiving PPP loans can now claim the ERC. But there are some important considerations to keep in mind:
- Wages used for PPP forgiveness cannot be for the ERC. Employers cannot double-dip using the same wages for PPP loan forgiveness and the ERC. To justify PPP loan forgiveness, wages cannot be used to calculate the ERC.
- Qualified wages: Employers can use wages paid during specific quarters to claim the ERC. For 2020, eligible wages include those paid between March 13 and December 31, 2020.
- Calculating the ERC. Employers with 100 or fewer full-time employees can claim the ERC on all qualified wages paid during business suspension or significant decline in gross receipts. Employers with over 100 employees can only claim the ERC for employee wages. This is not providing services due to the suspension or decline in gross receipts.
Maximizing the Employee Retention Credit: Here are a few tips to maximize the benefits of the ERC:
- Keep accurate records: Maintain detailed records of qualified wages, employee counts, and the impact of COVID-19 on your business operations.
- Consult with tax professionals. Given the complexities of claiming the ERC, seek guidance from tax professionals who can help you navigate the requirements. Also, ensuring accurate calculations is advisable.
- Claim retroactive ERC: If you didn’t claim the ERC for 2020 but believe you were eligible, you can file amended payroll tax returns to claim the credit retroactively.
Conclusion
The Employee Retention Credit has been a crucial support for businesses during the pandemic. Recent changes allowing PPP borrowers also to claim the ERC presents an additional opportunity for financial relief. However, employers must understand the eligibility rules, especially regarding using wages for PPP forgiveness and the ERC. By following the guidance outlined in this blog post and seeking professional advice, employers can make the most of the Employee Retention Credit and navigate the complexities of these relief programs effectively.
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