With the year-end stimulus bill that was recently passed, a change was made to allow companies that claimed PPP loans to now also claim the Employee Retention Credit (ERC) with wages that were not utilized as qualified expenses in the forgiveness of the PPP loan.

For 2020 & 2021, the combined credit could be up to $19,000 per employee, that is $5,000 for 2020 and $7,000 for each of the 1st and 2nd quarter of 2021.  For example, 10 employees X $19,000, could be worth $190,000.

The best way to qualify for the credit a drop in revenue of 50% from last year to this year for a quarter when comparing 2020 to 2019. For 2020 to 2021, you need to show a 20% decrease.  Showing a qualifying percentage decrease makes you eligible for the credit in the quarter with the decrease and also the subsequent quarter.  Additionally, a 20% decrease in the 4th quarter of 2020, we allow you to be qualified for the 1st quarter of 2021.

You can also qualify if your business was “fully or partially suspended by government order due to COVID-19”.  This is a specific definition provided by the IRS. For example, if an employer’s workplace is closed by a governmental order, but the employer is able to continue operations comparable to its operations prior to the closure by requiring its employees to telework, the employer’s operations are not considered to have been fully or partially suspended as a consequence of a governmental order.

If you are interested in pursuing this credit for either 2020, 2021 or both, then:

  1. Figure out whether your 4th quarter payroll tax return has already been filed to determine the urgency in pursuing the credit for 2020, as it will likely be more efficient and timely to claim the credit on an original, timely filed return. This can also be amended for up to 3 years.
  2. Analyze your revenue by quarter for 2019 and 2020 to see if you qualify under the easier revenue decrease condition.
  3. If you do not meet the revenue decrease condition, you need to determine if and when you were “fully or partially suspended by government order due to COVID-19” according to the IRS’ definition.

Thank you ORBA for contributing to this post.