Since March 2020, there have been several stimulus packages offered to provide funding to employers impacted by COVID-19. Many contractors took advantage of the Paycheck Protection Program (PPP) loan and the Economic Injury Disaster loan. However, the Employee Retention Credit (ERC) is another program contractor's should consider.
If you haven't heard of the ERC, you're not alone, many employers aren't aware of the credit because they initially didn't qualify. When this credit was originally enacted through the CARES Act, PPP recipients were prohibited from participating. However, this restriction was lifted on December 27, 2020 through the Consolidated Appropriations Act of 2021, potentially opening the ERC up to over a million more employers.
As of the date of this article, the ERC is based on wages paid to employees of the company from March 13, 2020 through December 31, 2021. Qualifying employers can receive up to $5,000 per employee for 2020 and $28,000 per employee for 2021. The U.S. Senate recently passed the infrastructure bill which is currently with the U.S. House of Representatives. This bill includes a provision to move the end date of eligible wages for the ERC to September 30, 2021, instead of December 31, 2021.
Employers can qualify by either:
- Experiencing a full or partial suspension of business operations due to orders from an appropriate governmental authority due to COVID-19, OR
- A reduction in gross receipts, as described further below
During the initial months of the pandemic, several construction sites were either temporarily shut down or significantly delayed due to government mandates. These types of interference with job progression could result in certain contractors qualifying for the ERC. An example of this was when the City of Boston announced on March 16, 2020 that certain non-essential construction jobs were temporarily shut down. On May 18, 2020 this postponement was lifted for some jobs, while others continued to be held up for several more weeks. Contractors that feel they may have experienced a partial impact due to COVID-19 should thoroughly review their eligibility for the ERC.
The reduction in gross receipts qualification is dependent on whether an employer is looking to qualify for the 2020 or 2021 ERC. In order to qualify for the 2020 ERC, a business would need to show at least a 50% reduction in gross receipts in any quarter of 2020 compared to that same quarter in 2019. For 2021, however, the required gross receipts reduction to qualify is only 20% when comparing any single quarter or the immediately preceding quarter to the same quarter in 2019.
Next step after confirming qualification is calculating the credit, which is different for 2020 vs. 2021. The 2020 ERC is 50% of eligible wages and healthcare costs up to $10,000 per employee, thus potentially up to $5,000 per employee. The 2021 ERC is 70% of eligible wages and healthcare costs up to $10,000 per employee per quarter, thus potentially up to $7,000 per employee per quarter or $28,000 for the entire year. For example, a contractor with 50 employees could qualify for up to $1,650,000 of ERC between 2020 and 2021. An important note is the definition of eligible wages is different for those who are considered “large employers” under the ERC, as these employers are only able to receive a credit for wages paid to employees not providing services. The definition of a large employer for the 2020 ERC is any employer that averaged more than 100 full-time employees during 2019. For the 2021 ERC, large employers are those that averaged more than 500 full-time employees during 2019.
To claim the credit, eligible businesses can withhold required deposits for certain payroll taxes - credits in excess of the businesses' quarterly liability could either request a refund or a credit to be carried forward on their original, timely filed quarterly 941. For those businesses who have determined their eligibility after the original filing of the Form 941, an amended payroll tax return would be required to be filed, which would include a request for a refund for the credit amount.
Withum has helped contractors all over the country in assistance with the ERC. If you think your business might be eligible, please reach out to your advisor or contact us here.
