Aaron Bloom, Tax Director at Gorfine, Schiller & Gardyn provides insights into Employee Retention Credit (ERC) opportunities for companies that were PPP loan recipients.
Q: Could you provide an overview of the ERC?
A: In an attempt to try to support small businesses suffering from the economic hardships brought on by the pandemic, the government not only offered PPP relief options, but also the ERC. The ERC was based on eligible salaries and eligible employers to help provide a quicker solution to aid businesses with cash flow.
Q: What has changed in terms of eligibility?
A: Originally, in early 2020 when the ERC was implemented, companies could not receive a PPP loan and qualify for ERC at the same time. The PPP program offered more relief, so most companies disregarded the ERC.
Towards the end of 2020and beginning of 2021,PPP Round 2was offered, changing the rules so that if a company received PPP funding, the same expenses paid for through PPP funds could not be used for the ERC. However, if a company had other expenses and qualifying wages, they could qualify for the ERC at the same time PPP funds were received.
This gave small businesses a chance to strategize savings opportunities by qualifying for both programs at the same time.
Q: What defines an “eligible employer”?
A: “Eligible employers” covers a wide range. First, eligibility includes a company that has either fully or partially suspended its operations due to a governmental order limiting commerce, travel, etc. This requirement covers most businesses. Very few businesses were not limited in some fashion during 2020, and even 2021 under the limitations of the government itself for COVID-19.
Companies can also qualify if gross receipts for any quarter in 2020 were less than 50% of the gross receipts for the same period in 2019.
Q: Is there a difference in the amount of credit for 2020 and 2021?
A: Yes, the base for companies to use is up to $10,000 worth of wages and/or health benefits, which will be the case for most companies. For 2020, companies are eligible to receive 50% of the $10,000 back for an employee. For example, if a company had 10 employees, each who made $10,000, the company would have 10 times $5,000making it eligible for a credit of $50,000 back, which is significant money, especially as businesses grow.
In 2021, the same $10,000 wage amount was used, but companies are eligible for up to 70% of it as an ERC, changing it from $5,000 per employee per quarter to $7,000 per employee per quarter.
If an employee had at least $10,000 worth of wages on the fourth quarter of 2020 and all four quarters of 2021, the employer, based on the employee, could receive $33,000 for that employee back as ERC.
Q: How does a company go about taking advantage of the ERC?
A: This goes hand in hand with payroll. ERC is a return of payroll taxes paid on employees. For a normal employee, when a company has normal payroll taxes, federal taxes, social security taxes, and Medicare, taxes are withheld.
The employer, therefore, then matches the social security taxes and the Medicare taxes, and pays them to the IRS on an employee’s behalf. The mechanism for the employer to receive the credit is reducing the deposits that they pay on behalf of the employee. This means the employee is still going to receive credit in full for their withholding, along with Medicare and social security. The government is refunding that money back to the employer.
The fourth quarter of 2020 and the first quarter of 2021have obviously passed, so companies need to file a form in order to receive a refund. Federal tax deposits originally required by businesses on either on a monthly, biweekly, or daily basis are now allowed to be reduced in order for payroll taxes to get an advance.
It’s important to formulate a strategy because companies cannot use the same wages that they’re qualifying for PPP forgiveness to qualify for the ERC. Companies should make sure they’re getting the most forgiveness possible, and at the same time, maximizing ERC relief.
Q: How canGorfine, Schiller & Gardyn help?
A: When you work with Gorfine, Schiller & Gardyn, you’re working with a team who has the knowledge and the background in all of these relief areas. We know the best way to maximize PPP forgiveness as well as ERC dollars and which expenses a company can use.
Our team will explain the process in a clear, concise way and assist companies with applications and completing amended returns.
Aaron Bloom is a Director of Tax Services at Gorfine, Schiller & Gardyn. For over 30 years, he has been specializing in tax services including, but not limited to, the areas of real estate, law, healthcare, and technology. Aaron has been actively involved in the MACPA, having served and chaired its Ethics and Federal Tax Committees. He is currently an appointed member of the AICPA Joint Trial Board, which reviews ethics cases against CPAs across the country.
