The Newly Expanded Employee Retention Credit

A federal tax credit helping financially impacted businesses pay employees via refundable employment tax credit

Greg Bocchino

Greg Bocchino

Partner, National Leader, Accounting Methods & Credit Services, KPMG US

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The Coronavirus Aid, Relief, and Economic Security (CARES) Act* includes several significant business tax and nontax provisions. 

 

Notably, the employee retention credit (ERC) provides immediate cash-flow relief to eligible employers that have been impacted by the COVID-19 pandemic. Such cash-flow relief comes in the form of a refundable employment tax credit, up to $5,000 per impacted employee for 2020 and up to $28,000 per impacted employee for 2021.

 

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.
 

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 each quarter in 2021; therefore, maximum credit is $28,000 per employee

    

In order to be an eligible employer for the credit, the employer must:

  • Have fully or partially suspended operations during an applicable calendar quarter 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 between March 13, 2020 and June 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?

  

 

 

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

Related resources

Insights on Notice 2021-23 guidance on the ERC

The IRS on April 2, 2021, released an advance version of Notice 2021-23 as guidance with respect to the employee retention credit for the first two calendar quarters of 2021.

The IRS on April 2, 2021, released an advance version of Notice 2021-23 as guidance with respect to the employee retention credit for the first two calendar quarters of 2021.

Employee Retention Credit: Seeking Clarity Amid COVID-19
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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