Could the Employee Retention Credit (ERC) be an option for you?

Last week CapinCrouse hosted a webinar about the Employee Retention Credit (ERC) component of the CARES Act. Certain provisions of CARES have been recently updated by Congress. The main focus was on PPP loans (note that the application deadline for first and second rounds was March 31st, new deadline is May 31), but they also touched on ERC. ERC may be applicable for some of our clients, even if you received a PPP loan last year.

The slides from the webinar are available here on the CapinCrouse website.

For 2021, the ERC can reduce the amount of Social Security (SS) taxes paid in the first two quarters of the year, up to 70% of each employee's qualified wages per quarter. Any excess credits are provided as refunds. For example, if an employee made $7,500 in Q1, the ERC is $5,250. Some of that will be applied against the current quarter's SS (~$465), and the remainder ($4,785) will be refunded.

Key details on qualifying for the ERC include:

1. A minister's compensation (usually exempt from SS and Medicare) cannot be counted as "qualified wages." See IRS ERC FAQ 58. Therefore, in cases where the minister is the only church employee, no credit is available. (This is unchanged from the original ERC.) "Qualified wages" also includes qualified health plan expenses.

2. Employers must demonstrate EITHER a significant decline in gross receipts OR that their services were fully or partially suspended by an appropriate governmental order due to COVID. The threshold for income decline is 50% for 2020 or 20% for 2021 as compared to income from 2019. 

3. If an organization claims a full or partial suspension of services, the suspension must be as a direct result of a governmental order related to COVID. e.g. a state or local limited gathering order. Note that some states exempted religious organizations from these orders. If that's the case, the organization wouldn't qualify unless there was a prevailing order from a local municipality. 

4. Also, to have been affected by a partial suspension of services, an employer must demonstrate that its operations after the suspension were not comparable to those before. For example, if church employees were already teleworking before the order, or services were already live streamed, a church may not be able to demonstrate significantly the effects of the suspension.

5. PPP loan recipients have to show that the same wages used for ERC weren't also used for PPP forgiveness.

If you would like to explore the option of ERC, especially those who didn’t receive a PPP loan, contact your Partner Strategist to learn more.