When the employee retention credit (ERC) was enacted in March 2020, companies that received a forgivable loan under the Paycheck Protection Program (PPP) were prohibited from claiming the credit. As a result, many businesses decided to forego the ERC and apply for larger PPP benefits instead.

But in December 2020, the Consolidated Appropriations Act of 2021 (CAA) removed the PPP restriction. As a result, companies that received PPP loans could now be eligible to claim the ERC as well—in some cases retroactively to March 2020. Other rule changes have also extended the program’s expiration date through the end of 2021, increased the size of the potential benefit, and made it easier for companies to qualify.

For example, companies may now qualify for the ERC if their gross receipts for any quarter decreased by 20 percent from the corresponding quarter in 2019. (The original requirement was a 50 percent quarterly revenue decline.) Under certain circumstances, the potential maximum credit has now increased to as much as $28,000 per qualified employee in 2021 (up from the original cap of $5,000 per qualified employee in 2020). Many companies will find the number of qualified employees has increased as well.

Unlike a PPP loan, there is no separate application or approval process. A qualifying employer simply claims the ERC on its quarterly employment tax return. If the credit amount exceeds the payroll taxes due, the IRS will refund the excess.

Of course, there are detailed limitations and specific qualification criteria that must be carefully reviewed. But with increased benefits and broader eligibility, companies that had previously ruled out the ERC could now find it merits a second look.  Please call your tax advisor at Dermody, Burke & Brown to review your company’s eligibility for the ERC or other tax credits.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.