Who Qualifies for the Employer Retention Credit?

The employee retention credit (ERC) is a refundable tax credit that can be used to cover up to 50% of an employer's employee income. It is available to churches and other religious organizations that have been affected by capacity restrictions imposed by the government, as well as businesses that have experienced a significant decrease in their gross revenues due to the pandemic. Qualified income, which includes specific health plan charges, disbursed during any qualifying quarter in which the company ceased operations, also qualifies for the ERC. Employers must be designated “qualified employers” under Section 52 or 414 of Internal Revenue, depending on their business structure, to use the employee retention credit score.

People who have more than 100 full-time employees can only use the qualified salaries of employees who do not provide services due to the suspension or decline of business activity. Employers with 100 or fewer full-time employees can use all the salaries of employees who work, as well as any paid time that they are not working, with the exception of paid vacation provided under the Families First Coronavirus Response Act. The employee retention credit is also available for any restaurant that had a partial suspension of operations the previous year, as specified in the occupancy restrictions for indoor dining. Employers will only be eligible for credit for qualified wages and earned wages during a period in which operations were suspended due to an outbreak of illness or a sharp reduction in total income, and the amount could often exceed what the employee would have earned without the pandemic.

Since the current aid package allows companies to use the ERC even if they have already received cash from the Check Protection Program (PPP), it has become one of the most frequently asked questions. The notice includes guidance on how employers who received a PPP loan can retroactively apply for the employee retention tax credit. For more information on the ERC, visit Cherry Bekaert's ERC Guidance Center or contact Martin Karamon.