The Employee Retention Credit
A federal tax credit helping financially impacted businesses pay employees via refundable employment tax credit
Partner, National Leader, Accounting Methods & Credits Services, KPMG US
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The Coronavirus Aid, Relief, and Economic Security (CARES) Act* includes several significant business tax and nontax provisions.
What you need to know about the ERC
*Expanded by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, signed into law on Dec. 27, 2020 and the American Rescue Plan Act of 2021, signed into law on Mar. 11, 2021.
**Repealed for calendar quarters beginning after September 30, 2021 (other than eligible recovery startup businesses) by the Infrastructure Investment and Jobs Act of 2021, signed into law on November 15, 2021.
What does the ERC offer to eligible employers?
2020
- 50% of qualified wages (including qualified health plan expenses) paid to each employee
- $10,000 in maximum wages; therefore, maximum credit is $5,000 per employee
2021
- 70 % of qualified wages (including qualified health plan expenses) paid to each employee
- $10,000 in maximum wages for Q1-Q3 in 2021; therefore, maximum credit is $21,000 per employee
In order to be an eligible employer for the credit, the employer must:
- Have fully or partially suspended operations during applicable calendar quarters in 2020 or 2021 due to orders from an appropriate government authority limiting commerce, travel, or group meetings due to COVID-19; OR
- Have experienced a significant decline in gross receipts during the calendar quarter.
Helpful definitions:
Qualified wages
Qualified wages are wages and compensation paid to certain employees from March 13, 2020 through September 30, 2021. Qualified wages include the eligible employer’s qualified health plan expenses.
If the eligible employer averaged more than 100 full-time employees in 2019 (for 2020 wages) or more than 500 full-time employees in 2019 (for 2021 wages), qualified wages are limited to the wages paid to the employee for the time that the employee is not providing services due to the circumstances causing the employer to be an eligible employer.
Significant decline in gross receipts
A significant decline in gross receipts begins with the first quarter in which an employer’s gross receipts for a calendar quarter in 2020 are less than 50 percent of its gross receipts for the same calendar quarter in 2019, or for 2021 that are less than 80 percent of gross receipts for the same calendar quarter in 2019. Alternative considerations may apply as well.
What does the ERC mean to your organization?
Public colleges and universities as well as governmental health care employers may now be eligible for the ERC for qualified wages paid during Q1-Q3 2021.
Small and start-up businesses accross all industries may have an opportunity to receive financial relief through payroll tax credits, which may result
Employers that received a Paycheck Protection Program (PPP) loan may now be eligible for the ERC for both 2020 and 2021.
KPMG can help
- Determine and document if the company is an eligible employer
- Coordinate with company’s Tax, Legal, and other applicable internal departments, as well as external counsel to consider applicable government orders
- Use automated technology-based solutions to efficiently and properly identify and document impacted employees
- Calculate and document qualified wages
- Coordinate with other CARES Act provisions and employment tax and federal tax regimes, as necessary, to help ensure no double-counting
- Assist with the procedural requirements to claim the credit.
- Support related to the proper financial statement accounting treatment for credits claimed
News and guidance
December 6, 2021 - Notice 2021-65: Termination of employee retention credit, guidance for fourth quarter 2021 (COVID-19)
September 8, 2021 - Regulations: Recapture of excess employment tax credits under the “American Rescue Plan Act” (COVID-19)
August 10, 2021 - Rev. Proc. 2021-33: Safe harbor for employers to exclude amounts for determining employee retention credit eligibility
August 4, 2021 - Notice 2021-49: Guidance for employers claiming employee retention credit, for third and fourth quarters 2021
April 6, 2021 - KPMG report: Notice 2021-23 and employee retention credit for first two calendar quarters of 2021
April 2, 2021 - Notice 2021-23: Employee retention credit
March 10, 2021 - Compensation and benefits-related provisions in COVID relief bill
March 5, 2021 - Notice 2021-20 provides much anticipated guidance regarding the employee retention credit for 2020
Earlier news
January 25, 2021 - Review of compensation and benefits-related tax provisions in Consolidated Appropriations Act, 2020
November 19, 2020 - IRS offers clarifications in FAQs addressing interaction of ERC and PPP loans in acquisitions (COVID-19)
November 16, 2020 - IRS updates FAQs on employee retention credit, interaction with PPP relief (COVID-19)
August 21, 2020 - IRS statement on failure-to-deposit penalties, employers claiming new tax credits (COVID-19)
July 24, 2020 - Regulations: Rules for refundable employment tax credits (COVID-19)
July 15, 2020 - IRS notification regarding delay in processing advance payment of employer credits
June 23, 2020 - IRS updated FAQs on employee retention credit
June 22, 2020 - Updated FAQ on employee retention credit for exempt organizations (COVID-19)
May 27, 2020 - Updated FAQs on employee retention credit and PPP repayments
May 8, 2020 - IRS updates FAQs on employee retention credit, treatment of health plan expenses and PPP repayments
April 30, 2020 - Initial impressions of additional FAQs on the employee retention credit (COVID-19)
April 29, 2020 - IRS updates, expands FAQs on employee retention credit
April 23, 2020 - JCT description of employee retention credit, payroll deferral provisions in CARES Act.
April 3, 2020 - Employer-related liquidity—tax credits, deferrals, and efficiencies
March 30, 2020 - Cash-flow planning, leveraging tax accounting methods and credits (COVID-19)
Related resources
Guidance for employers regarding retroactive termination of employee retention credit for wages paid.
Guidance for employers regarding retroactive termination of employee retention credit for wages paid.
Read more
Notice 2021-49: Guidance for employers claiming employee retention credit, for third and fourth quarters 2021
Additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021
Additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021
Read more
Read our report
July 2020 | This issue of Chief Tax Officer Insights – Issues Spotlight examines questions tax leader must answer as they weight the benefits against the risks of claiming the Employee Retention Credit.
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