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- Emerging as a popular tool for businesses shut out of the Paycheck Protection Program (PPP)
- Maximum credit per employee is $5,000
- Calculation differs for businesses who have more than 100 Full-Time Employees (FTEs)
- DSJ’s CRT seeing pivot towards Employee Retention Credit amongst clients
The difficulties and delays continue to mount as businesses struggle to access the funds allocated to the popular Paycheck Protection Program (PPP). As we wrote about earlier this week in our article PPP Replenished but Predicted to Run Out In Two Days, the total value of applications for the PPP in the pipeline for the SBA to review is four times greater than the total amount of funds placed in the PPP earlier this week. The prospect of the Program running out again in just a matter of days has forced businesses to turn elsewhere for financial relief.
A popular alternative option to the PPP is the Employee Retention Credit (ERC), a tool that is available to all businesses except for government agencies.
What is the Employee Retention Credit (ERC)?
- The ERC is a refundable tax credit against an Employer’s Social Security tax
- The amount of the credit is equal to 50% of qualified wages paid by employers to employees
- The tax credit applies to qualified wages paid after March 12, 2020, but before January 1, 2021
- The maximum amount of qualified wages that can be counted to determine the credit is $10,000, resulting in a maximum credit of $5,000 per employee
Who is eligible for the ERC?
- Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during CY 2020 and experience either:
- The full or partial suspension of their operation of their trade or business
- A significant decline in gross receipts
What are qualified wages?
- Qualified wages are wages, including certain health care costs, paid to employees during the period of time in which the business was negatively affected
- The calculation differs between businesses who have less than or more than 100 FTEs
Are there restrictions placed on businesses who use the ERC?
- Employers who receive the PPP loan are not eligible for the ERC
- Credit applied during the quarter may not exceed the total employer Social Security tax
- Credit is reduced by any Paid Family and Medical Leave Credit
- Excludes paid sick leave or paid family leave waged paid under FFCRA
Please contact our Coronavirus Response Team (CRT) to learn more about the Employee Retention Credit and how it can help your business during these unprecedented times. Additionally, please visit the DSJ COVID-19 Information Center to stay up to date on any similar programs that are available for businesses to access.
Anthony Carrella
Non-for-Profit Partner