The original Coronavirus Aid, Relief and Economic Security Act (CARES Act) signed into law on March 27, 2020 did not allow employers to both obtain a Paycheck Protection Program (PPP) loan and claim the Employee Retention Tax Credit (ERTC). The Consolidated Appropriations Act 2021 signed into law on December 27, 2020, provides an important modification to the CARES Act, now allowing eligible employers to claim the ERTC even if they received a PPP loan in 2020. In addition, the act created an additional ERTC available to eligible companies in 2021. Eligible employers can obtain both the 2nd PPP loan and claim the ERTC in 2021.
The ERTC maximum per employee is different for 2020 and 2021 as noted below:
- For wages paid after March 12, 2020 and before January 1, 2021, the ERTC can be applied to 50% of qualifying wages up to $10,000. This means a maximum of $5,000 per employee could be credited back to your company if it qualifies.
- For wages paid after January 1st, 2021, and before July 1, 2021, the ERTC can be applied to 70% of qualifying wages of up to $10,000 per quarter. This means companies could receive a maximum of $14,000 per employee through June 30, 2021.
- 2020 ERTC eligibility requirements: An employer with 100 employees or less. Business operations that were fully or partially suspended by a Covid-19 lockdown; or, for any quarter in 2020, if gross receipts are less than 50% of gross receipts for the same quarter of 2019.
- 2021 ERTC eligibility requirements: Effective January 1, 2021, for employers with 500 employees or less for the first two quarters of 2021. Business operations that are either fully or partially suspended by a COVID-19 lockdown order; or, for a quarter in 2021, if gross receipts are less than 80% of gross receipts for the same quarter in 2019.
- Wages are not limited to cash payments but can also include a portion of the cost of employer-provided health care. However, compensation does not include paid sick or family leave for which the employer is reimbursed under the Families First Coronavirus Response Act.
- The qualified wages for the PPP Loans cannot be used. Thus, wages used for ERTC cannot be used for PPP forgiveness.
If you think your company may be eligible for the ERTC, please contact Lohman Company, PLLC at 480-355-1100 to speak to a professional.