What is the Employee Retention Tax Credit?

Did you know? Employee Retention Credits (or ERC) provides businesses with another source of financial relief. If you answered ‘no', you're not alone. According to a recent study, only 39% of small businesses were even aware of this payroll tax credit.

If you're looking to save dollars wherever you can, or want to maximize the financial relief available to you, keep reading this post to learn more.

What is ERC?

Each pay period, employers withhold a certain amount of an employee’s earnings—called qualified wages. This money is for federal unemployment (or FUTA) tax. Payroll tax credits—like the Employee Retention Credit (ERC)—let businesses keep some of this money by reducing the federal taxes they have to pay. If you're looking to save dollars wherever you can, ERC is one method to leverage.

Example: If your quarterly payroll tax bill is $15,000 and you’re eligible for an $8,000 tax credit, your tax payment will be reduced to $7,000. If your tax credit is $15,000 on a tax bill of $12,000, you can get a $3,000 check.

Is my business eligible for ERC in 2021?

There are two main ways to qualify for ERC. You may qualify if your business has been subject to a partial or full suspension due to a government order (federal or state). Or, you may qualify if you've seen a drop in gross receipts* compared to 2019 by 20% in 2021. 

What is the tax credit amount? 

If you qualify for this credit for 2021, you can receive up to $7,000 per employee per quarter in 2021. The amount of the tax credit is equal to 70% of the first $10,000 in qualified wages per employee per quarter in 2021, which includes the cost of offering health benefits to employees. 

That said, the maximum credit amount for 2021 is $14,000, which is almost 3x the 2020 maximum of $5,000. Plus, the ERC just got extended until December 31, 2021 so we’re awaiting guidance to see if that translates into a maximum 2021 credit of $28,000 (no certainty yet).

Does the size of my business matter?

The definition of “qualified wages” depends on the size of your business. 

  • For employers with less than 500 employees: Qualified wages* are ALL wages paid to employees in 2021, whether they are working or not. 
  • For employers with more than 500 employees: Qualified wages* are only wages, paid to employees who are NOT working. What does “paid to not work” mean?

Here is an example: Mike is the owner of a large restaurant that has three locations and 600 employees. During the government shut down, Mike could only have some of his staff at work. However, he opted to pay the wages and healthcare benefits to employees he had to furlough. In this scenario, only wage and benefits paid to furloughed employees would be considered “qualified wages.”

* Qualified wages includes the cost to provide health benefits to employees 

Am I eligible for ERC if I received a PPP loan?

Yes, businesses that received a PPP loan are eligible to claim the tax credit. However, you can only claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness.

For example: Wages that were paid with PPP loan proceeds that were forgiven or expected to be forgiven cannot also be used to substantiate an ERC claim. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.

For 2020 PPP loans: Today the ERC is now retroactively available to PPP borrowers, thanks to the Consolidated Appropriations Act of 2021 that was signed into law on December 27, 2020. A company that received a PPP loan in 2020 and paid QW over the amount of the forgiven PPP loan used to pay wages can claim the ERC for the difference.

For 2021 PPP loans: A company that will receive a PPP loan in 2021 can claim ERC pending guidance from the IRS.

Are there new regulations that impact ERC in 2021? 

Yes, the Consolidated Appropriations Act of 2021 extended it until July 1, 2021 and American Rescue Plan Act that President Biden signed on March 11 extends ERC through the end of 2021. In the new bill, businesses can claim the refundable credit equal to as much as $7,000 per employee per quarter. Note: The IRS has not issued any guidance regarding the ERC for 2021. The IRS only recently issued guidance on March 1, 2021 related to the ERC for 2020.

How do I receive the tax credit?

Typically, tax credits are taken off your quarterly payroll tax bill. However, if your tax credit is greater than the amount paid in FUTA tax, you can receive a check from the IRS. In that case, when the IRS issues a tax refund for that period to ProService, we will remit that tax refund to you once received. 

When can I expect to receive the credit? 

The timeline is completely up to the IRS as it processes the submissions so unfortunately we are not able to provide a typical response date.  We will, however, keep you updated on the credit as soon as we receive information from the IRS.  

How does ProService help?

At ProService, we run your payroll and file your payroll taxes for you. Plus, as important employer and relief regulations change, we’ll provide resources and support to help you stay compliant and take advantage of every opportunity to leverage tax credits like ERC or grant programs like PPP to sustain your business. 

9 Things to Know about the Shuttered Venue Operators Grant

For a long time now, events and venues affected by the COVID-19 pandemic have been waiting for relief that would address the live event industry's unprecedented losses. After much waiting, the Shuttered Venue Operators Grant, or SVOG, is launching in April. Here's what you need to know…and how to be prepared to apply. 

What is the Shuttered Venue Operators Grant (SVOG)?

The SVOG is the SBA’s plan to support the live events industry. It is part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which was signed into law on  December 27, 2020 as a special provision within the Consolidated Appropriations Act of 2021. It includes over $16 billion in grants to shuttered venues and reserves $2 billion for eligible applications with up to 50 full-time employees. Since the program is set-up as a grant (instead of a loan), funds do NOT need to be repaid. 

Who can apply?

Eligible entities include:

  • Live venue operators
  • Live venue promoters
  • Theatrical producers
  • Live performing arts organization operators 
  • Motion picture theater operators
  • Theatre operators 
  • Talent representatives
  • Museum operators, zoos and aquariums 

Other requirements:

  • Must have been in operation on Feb 29, 2020
  • Must not have an application pending for a PPP loan
  • A reduction in gross revenue of at least 25% when comparing the same quarter from 2020 and 2019
Who is ineligible to apply?

A venue operator is NOT eligible if any of the following apply:

  • Received a PPP loan on or after Dec. 27, 2020
  • More than 10% of 2019 gross revenue came from the federal government 
  • Is a publicly traded corporation
  • Presents live performances or sells products or services of a prurient sexual nature
  • Operates in more than one country or in 10+ states; AND it had more than 500 employees as of 2/29/20

* See more specific requirements by business type, outlined by the SBA.

How much money can I expect to receive?

It depends on when your organization was in operation:

If you were in operation BEFORE January 1, 2019, the grant will equal 45% of your 2019 gross earned revenue, up to a maximum of $10 million.

If you began operations AFTER January 1, 2019, the grant amount will be the average monthly gross revenue for each full month you were in operation during 2019, multiplied by 6, up to a maximum of $10 million.

When do SVOG applications open?

The SBA will begin accepting applications through its portal on April 8, 2021. It will process applications based on the degree of economic loss suffered by your organization/how much revenue was lost.

  • First priority (Days 1-14): For organizations that lost 90% or more of revenue between April 2020 and December 2020
  • Second priority (Days 15-28): For organizations that lost 70% or more of your revenue between April 2020 and December 2020
  • Third priority (Days 28+): For organizations that lost 25% or more of your revenue between April 2020 and December 2020
  • Supplemental Funding (after First/Second Priority): For organizations that are awarded a First or Second Priority grant, and lost 70% or more of your revenue in most recent calendar quarter (as of April 1, 2021)
What should venue operators be doing now?

The SBA is encouraging applicants to take steps NOW to prepare while it builds the program portal. Here are its recommendations:

  • Obtain a Dun & Bradstreet (DUNS) number so you can then register in the System for Award Management (SAM.gov). Other identifiers, such as an Individual Taxpayer Identification Number or Employer Identification Number, cannot be used.
  • Register in SAM.gov immediately after you receive a DUNs number as the SAM registration may take up to two week after submission.
  • Gather documentation showing your employee count and monthly revenue so that you can calculate the average number of qualifying employees your entity has had over the prior 12 months (see page 20 of FAQs)
  • Determine extent of gross revenue loss experienced in 2020 compared to 2019 (see page 21 of FAQs)
How can I use SVOG funds?

You are allowed to use the funds to cover essential operation expenses, labor costs, taxes and debts. 

Eligible labor-related expenses:

  • Payroll costs
  • Expenses related to worker protection
  • Payment of  independent contractors, as long as the annual compensation does not exceed $100k per contractor

Eligible operating expenses:

  • Payments for your rent and utilities
  • Ordinary business expenses as well as maintenance costs
  • Administrative costs as well as fees and licensing
  • State and local taxes
  • Insurance payments

Eligible debt and mortgage payments:

  • Scheduled mortgage payments (not including prepayment of principal)
  • Scheduled debt payments (not including prepayment of principal) on any indebtedness incurred in the ordinary course of business prior to February 15, 2020)
  • Operating leases in effect as of February 15, 2020

Eligible production-specific costs:

  • You are allowed to use the grant for advertising, production transportation, and capital expenditures related to producing a theatrical or live performing arts production, however this may not be the primary use of the funds.

You may NOT use funds from the grant to:

  • Buy real estate
  • Make payments on loans originated after February 15, 2020
  • Make investments or loans
  • Make contributions or other payments to, or on behalf of, political parties, political committees, or candidates for election
  • Any other use prohibited by the Administrator
How does PPP and EIDL impact SVOG?

Where can I learn more about the SVOG?