We have written a lot on Employee Retention Credits since they were first introduced in 2020, documenting the various changes and how they affect businesses of all kinds. Today, many businesses have already applied for their Employee Retention Credit for 2020 and 2021.
That said, there are still opportunities to retroactively claim that credit. So whether you’ve already claimed your ERC or plan to retroactively claim it in the future, this post will answer all your questions, including whether you qualify, how much you qualify for, and when you can expect that retroactive credit to appear in your organization's bank account.
What is the Employee Retention Credit?
The Employee Retention Credit is a credit that employers could claim on qualified wages in 2020 and 2021. It was originally created during the CARES Act back in March 2020, which was the first stimulus bill created to support the U.S. economy when the COVID-19 pandemic started. The Employee Retention Credit in particular was used as a way to incentivize and reward companies that kept employees on their payroll.
Since its original creation, rules about who qualifies for this credit and how much they qualify for have changed multiple times.
Can you retroactively apply for the Employee Retention Credit?
Yes. You can retroactively apply for the Employee Retention Credit for 2020 up until April 15, 2024, and for 2021 up until April 15, 2025.
What are the qualifications for the use of the Employee Retention Credit for 2020?
The qualifications for the use of the Employee Retention Credit for 2020 are as follows:
- More than a 50% decline in gross receipts from a comparable quarter in 2019, followed by a 20% decline in gross receipts from a comparable quarter in 2019 once that 50% threshold has been met.
- OR if your business was shut down because of a government order, you qualify for the time period that order was in effect.
How much can you qualify for the Employee Retention Credit in 2020?
Amount Paid:
- Businesses receive up to 50% of all qualified wages up to $10,000 in wages per employee for the entire year. This essentially means you could qualify for up to $5,000 per employee for 2020.
Number of Employees:
- Less than 100 full-time employees - You can claim the credit for all employees, working or not working.
- Example: If you had 50 employees and met all other qualifications outlined above, your organization could qualify for an Employee Retention Credit of up to $250,000 (50 employees x $5,000 per employee).
- More than 100 full-time employees - You can only claim the credit for the employees that were being paid not to work.
- Example: If you had 150 employees and met all other qualifications outlined above, but only 110 of your employees were kept on payroll and not working, your organization could qualify for an Employee Retention Credit of up to $550,000 (110 employees x $5,000 per employee).
How do Payment Protection Plan (PPP) loans impact the Employee Retention Credit?
When it was first rolled out, you could not qualify for the Employee Retention Credit and PPP loans. However, this changed at the end of 2020, and now those that took PPP loans can qualify for the Employee Retention Credit as well.
The primary stipulation is that any payroll expenditures reported for PPC loan forgiveness are not eligible for Employee Retention Credit.
What are the qualifications for the Employee Retention Credit for 2021?
The qualifications for the use of the Employee Retention Credit for 2021 are as follows:
- More than a 20% decline in gross receipts from a comparable quarter in 2019 or 2020.
- OR if your business was shut down because of a government order, you qualify for the time period that order was in effect.
How much can you qualify for the Employee Retention Credit in 2021?
How much you could qualify for in 2021 depends on whether you qualified during the first or second half of the year.
Amount Paid (Q1 & Q2):
- Up to 70% of qualified wages up to a maximum of $10,000 for EACH quarter.
- That represents a maximum of $14,000 per employee for the first two quarters of 2021.
Amount Paid (Q3 & Q4):
- Up to 70% of qualified wages up to a maximum of $10,000 for EACH quarter.
- HOWEVER, there was a maximum of $50,000 in credits per quarter.
Lastly, employee limits were raised in 2021:
- Less than 500 full-time employees - You can claim the credit for all employees, working or not working.
- Example: If you had 50 employees and met the qualification criteria outlined above, your organization could qualify for a max Employee Retention Credit of $350,000 (50 employees x $7,000 per employee) for each quarter you qualified in Q1 and Q2 of 2021. If you qualified in Q3 and Q4, you could qualify for a max Employee Retention Credit of $50,000 for each quarter.
- More than 500 full-time employees - You can only claim the credit for the employees that were being paid not to work.
- Example: If you had 600 employees and met the qualification criteria outlined above, but only 110 of your employees were kept on payroll and not working, your organization could qualify for a max Employee Retention Credit of $770,000 (110 employees x $7,000 per employee) for each quarter you qualified in Q1 and Q2 of 2021. If you qualified in Q3 and Q4, you could qualify for a max ERC of $50,000 for each quarter.
When will you receive your Employee Retention Credit refund?
The simple answer to this question is that it depends.
From what we have seen so far, any credits below roughly $200,000 per quarter are processed in the normal IRS timeframe, which is about four months on average.
If you apply for more credits than that, your Employee Retention Credit is subject to additional review, which could push out relief for an indeterminate amount of time. There has been increased scrutiny on larger credits, as the IRS is trying to limit the amount of fraud that has plagued the Employee Retention Credit program.
Contact Meaden & Moore
Without a doubt, the Employee Retention Credit can be difficult to apply for given all of the rules and regulations surrounding its use. We outlined them here as clearly as possible, but if you would like to claim this credit it’s best to contact the experts here at Meaden & Moore. We can help you retroactively claim your ERC and properly account for it. Reach out to us today to learn more.
