Several stimulus packages have been on offer since March 2020 to provide funding to employers affected by COVID-19. Many contractors took advantage of the Paycheck Protection Program (PPP) loan and the Economic Injury Disaster loan. However, the Employee Retention Credit (ERC) is another program contractual partner that you should consider.
If you haven’t heard of the ERC, you are not alone, many employers are unaware of the recognition because they did not initially qualify. When this credit was originally enacted by the CARES Act, PPP recipients were prohibited from participating. However, that restriction was lifted on December 27, 2020 by the Consolidated Appropriations Act of 2021, potentially opening the ERC to over a million additional employers.
As of the date of this article, the ERC is based on the wages paid to employees of the company from March 13, 2020 to December 31, 2021. Qualified employers can get up to $ 5,000 per employee for 2020 and $ 28,000 per employee for 2021.The U.S. Senate recently passed the Infrastructure Bill that is currently in the U.S. House of Representatives. This bill includes a provision to postpone the end date of eligible wages for the ERC to September 30, 2021 instead of December 31, 2021.
Employers can qualify through:
- experienced a complete or partial cessation of business operations due to orders from a competent government agency due to COVID-19, OR
- A reduction in gross income, as described below
In the first few months of the pandemic, several construction sites were either temporarily closed or significantly delayed due to government orders. These types of professional development impairments could result in certain contractors qualifying for the ERC. An example of this was when the City of Boston announced on March 16, 2020 that certain non-essential construction work was being temporarily closed. On May 18, 2020, this postponement was lifted for some positions, while others were held for several weeks. Contractors who believe they may have had a partial impact due to COVID-19 should thoroughly review their eligibility for the ERC.
The reduction in gross income qualification depends on whether an employer wants to qualify for the ERC 2020 or 2021. To qualify for the ERC 2020, a company must at least a 50% Reduction in gross income in any quarter of 2020 compared to the same quarter of 2019. However, for 2021 the required reduction in gross income is only 20% when comparing a single quarter or the immediately preceding quarter with the same quarter in 2019.
The next step after the qualification is confirmed is the calculation of the loan, which is different for 2020 and 2021. The 2020 ERC is 50% of eligible wages and healthcare costs up to $ 10,000 per employee, potentially up to $ 5,000 per employee. The 2021 ERC includes 70% of eligible wages and healthcare costs up to $ 10,000 per employee per quarter, potentially up to $ 7,000 per employee per quarter, or $ 28,000 for the full year. For example, a contractor with 50 employees could qualify for up to $ 1,650,000 of the ERC between 2020 and 2021. It is important to note that the definition of eligible wages for those identified as “big employers” under the ERC is different, as those employers can only receive credit for wages paid to non-service workers . The definition of a large employer for the 2020 ERC is any employer that had an average of more than 100 full-time employees in 2019. For ERC 2021, large employers are those who had an average of more than 500 full-time employees in 2019.
Eligible businesses may withhold required deposits for certain wage taxes to receive credit. Credits that exceed companies’ quarterly liability can either be refunded or transferred to their original, timely submitted quarterly 941 request; of the credit amount would include.
Withum has helped contractors across the country support the ERC. If you think your company is an option, please contact your advisor or contact us here. Find out today if you’re eligible.