Employee Retention Credit Overview
Max Employee Retention Credit Per Employee
Employee Retention Credit Valid Thru
Employee Retention Credit Repayment Amount
Employee Retention Credit Quicklinks
"Choosing to have PayNortheast process our Employee Retention Credit was the best decision I made. They got my business 1.2 million dollars!"
What is the ERC
What is the Employee Retention Credit?
The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 70% of the qualified wages an eligible employer pays to employees between January 1, 2021 and December 31, 2021, and 50% on wages paid after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer's employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS. Unlike Paycheck Protection Program (PPP) loans and other small business relief options, businesses of all sizes are eligible to receive the Employee Retention Credit. And because the ERC is not a loan, recipients will never need to repay or seek forgiveness for ERC funds.
Who can claim the Employee Retention Credit?
To be eligible for the Employee Retention Credit, an employer must meet one of the following conditions:
[2020 ERC eligibility] Gross receipts for a calendar quarter are <50% compared to the prior year, in 2019. Employers can claim the credit during the first quarter that they see this decline, until it recovers to 80% or more of the gross receipts for the same calendar quarter in the prior year.
[2021 ERC eligiblity] Gross receipts for a calendar quarter are <20% compared to the prior year. Employers can claim the credit during the first quarter that they see this decline, until it recovers to 80% or more of the gross receipts for the same calendar quarter in the prior year. With the update, you can also now use prior quarter gross receipts to determine eligibility.
[UPDATE MAR 2021] If employers were not in existence in the equivalent calendar quarter in calendar year 2019, they may substitute ‘2020’ for ‘2019.’
[UPDATE MAR 2021] Seasonal employers may substitute ‘the average quarterly wages paid by the employer in calendar year 2019’ instead of using the equivalent quarter in 2019.
[UPDATE MAR 2021] New: $50,000 quarterly credit cap for businesses defined as a “Recovery Startup Business.”
These are businesses that started operations after February 15, 2020, with no more than $1 million in annual gross receipts.
ERC qualified wages
Employee Retention Credit Qualified Wages
Qualifying wages are the wages and compensations employers pay to employees during the time period. This includes qualified health plan expenses associated with said wages.
Another factor that determines qualified wages is the number of full-time employees you had in 2019.
In 2020, employers with fewer than 100 full-time employees in 2019 could claim the ERC on all wages paid to employees during a qualifying period (e.g., shutdown period).
The Act increased the small employer threshold from 100 full-time employees to 500.
Employers with up to 500 full-time employees in 2019 can claim the ERC for 2021 on wages paid for working or non-working periods.
An employer with fewer than 500 employees is eligible for the credit, even if employees are working. Businesses with 500 or fewer employees can also advance the credit anytime during the quarter based on 70% of the average quarterly payroll for the same quarter in 2019.
Employers with more than 500 full-time employees in 2019 may claim the credit only for wages paid to an employee while the employee is not performing services for the employer.
In accordance with section 4980H(c)(4) of the Code and as provided by Notice 2021-20, the term “full-time employee” for purposes of the employee retention credit means an employee who, with respect to any calendar month in 2019, had an average of at least 30 hours of service per week or 130 hours of service in the month (130 hours of service in a month is treated as the monthly equivalent of at least 30 hours of service per week).
ERC and the PPP loan
Employee Retention Credit and the PPP loan
Originally, employers could choose to receive the Employee Retention Credit or the PPP loan, but not both. That changed in December of 2020 when congress passed a bill making it possible for employers to receive both the PPP loan and the Employee Retention Credit. However, wages paid using the PPP loan do not count as eligible wages, and should not be included when calculating the Employee Retention Credit.
How to calculate the Employee Retention Credit
Calculating your ERC amount can get a little complicated. Don’t worry, we’ll walk you through it. Prefer to have us calculate and file the Employee Retention Credit for you? We guarantee we will get you the most money possible based on your eligibility.
Employee Retention Credit
For 2020, the Employee Retention Credit is equal to 50% of qualified employee wages paid in a calendar quarter. The credit applies to wages paid after March 12, 2020, and before January 1, 2021. Eligible wages per employee max out at $10,000, so the maximum credit for eligible wages paid to any employee during 2020 is $5,000.
Employee Retention Credit
For 2021, the Employee Retention Credit is equal to 70% of qualified employee wages paid in a calendar quarter. Eligible wages per employee max out at $10,000 per calendar quarter in 2021, so the maximum credit for eligible wages paid to any employee during 2021 is $21,000.
In 2020, eligible wages paid to each individual employee that may be used to calculate the ERTC for all calendar quarters may not exceed $10,000. In other words, the employer is allowed a maximum $5,000 ($10,000 x 50 percent) credit per employee for all calendar quarters in which eligible wages are paid.
In 2021, eligible wages paid to each individual employee that may be used to calculate the ERTC may not exceed $10,000 per each quarter. In other words, the employer is allowed a maximum $7,000 ($10,000 x 70 percent) credit per employee for each calendar quarter in which eligible wages are paid. Any eligible wages taken into account in determining the ERTC allowed shall not be taken into account as wages for purposes of various other tax credits and PPP loan forgiveness.
Here are some examples.
You pay Keith $10,000 in the first quarter of 2021. The credit amount available to you is 70% of qualified wages – $7,000. In Q2 of 2021, you pay Keith $10,000. Once again, you can claim a $7,000 credit in Q2.
You pay Kelly $8,000 in Q1 of 2021. You pay her $12,000 in Q2 of 2021. Your credit is $5,600 in Q1 and $7,000 in Q2. Kelly’s wages exceed $10,000 in Q2, so the credit calculation is capped at $10,000.
You pay Amy $8,000 in Q2 of 2020. You pay her $6,000 in Q3 of 2020. Your credit amount for Amy is $4,000 in Q2 and $1,000 in Q3. Once you hit the $5,000 cap, any additional wages you pay Amy in 2020 won’t increase your credit amount.
Claiming the ERC
How to claim the Employee Retention Credit
In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter. The credit is taken against the employer's share of Social Security tax but the excess is refundable under normal procedures.
In anticipation of claiming the credit, employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited, including federal income tax withholding, the employees' share of Social Security and Medicare taxes, and the employer's share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty, taking into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act.
Companies that use PayNortheast as their payroll service can request to have their Employee Retention Credit processed for them at no cost. Companies that use a different payroll service can request PayNortheast to process the Employee Retention Credit on their behalf for a small fee per quarter.
File my ERC
How does PayNortheast process my Employee Retention Credit
Having PayNortheast process your Employee Retention Credit is fast, easy, and affordable. We have secured tens of millions in tax credits for companies.
Step 1: Complete the contact form. A representative will contact you to answer any of your questions and obtain additional information.
We will need a copy of your 941 form and a quarter-to-date payroll register.
Step 2: PayNortheast will calculate your credit based on your 941 form and the payroll register you provide.
Step 3: PayNortheast will submit your amended return to the IRS. The IRS will issue you a refund check for your credit.
We will also send you a copy of the amended return we submit to the IRS
Employee Retention Credit FAQ
Find answers to frequently asked Employee Retention Credit Questions.
Do I need to repay the Employee Retention Credit?
No. The funds received for the Employee Retention Credit (ERC) do not need to be repaid. All eligible employers should take advantage of the Employee Retention Credit for this reason.
How can I apply for the Employee Retention Credit?
If you are eligible for the ERC, you must calculate the amount of your credit based on your eligible wages. You must then file amended 941 returns with the IRS for each quarter you wish to receive the Employee Retention Credit for. We do not recommend you do this on your own as incorrectly completing the amended return can have serious tax consequences.
How much money can I receive for the Employee Retention Credit?
Eligible wages per employee max out at $10,000, so the maximum credit for eligible wages paid to any employee during 2020 is $5,000. For 2021, the Employee Retention Credit is equal to 70% of qualified employee wages paid in a calendar quarter. Eligible wages per employee max out at $10,000 per calendar quarter in 2021, so the maximum credit for eligible wages paid to any employee during 2021 is $27,000.
What is the total cost for PayNortheast to process my Employee Retention Credit?
We will calculate and file your Employee Retention Credit for $500 per quarter. The cost is reduced to 0 for companies using our payroll services.
What do you need in order to process my Employee Retention Credit?
In order to process your Employee Retention Credit, we will need a summarized payroll register by employee for each quarter. We will also need a copy of your 941 forms filed for the quarter. This will allow us to calculate and file your Employee Retention Credit.
How do I apply for the Employee Retention Credit for future quarters?
For current and future quarters, the Employee Retention Credit can be provided to you each time payroll is processed. This is done by reducing your federal tax liability. For example, if you owe $1,000 in federal taxes for this payroll, but have $3,000 in tax credits, you are not required to pay the $1,000. The remaining Employee Retention Credit not used during the quarter will be refunded when your quarterly returns are filed. To receive the credit per payroll, switch your payroll service to PayNortheast. Click here to contact us about our payroll service.
When does the Employee Retention Credit Expire?
Currently, eligible employers can take advantage of the Employee Retention Credit for all eligible wages paid until 09/31/2021.