The Employee Retention Tax Credit is considered one of our Hiring Incentives and the most current version was signed into law as a result of the COVID-19 crisis with the CARES Act in 2020.  However, there is a previous version of the Employee Retention Tax Credit that focuses on Disaster Relief.  For purposes of clarifying the differences between the two we call the current version COVID ERC or C-ERC and the previous version Disaster ERC or D-ERC.


COVID-ERC

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a new employee retention tax credit for employers who closed, partially or fully, and experienced significant revenue losses as a result of COVID-19.


Who Is Eligible?

Private employers, including non-profits, carrying on a trade or business in 2020 that:

  • Have operations partially or fully suspended as a result of orders from a governmental authority due to COVID-19, or
  • Experience a decline in gross receipts by more than 50% in a quarter compared to the same quarter in 2019 (eligibility ends when gross receipts in a quarter exceed 80% of the same 2019 quarter)


As of June 1, 2020, employers who received a Paycheck Protection Program Loan (PPP) are not eligible for this tax credit.  Legislation is being created that may change this stipulation.


How Much Is The Tax Credit?

C-ERC is a 50% tax credit for the first $10,000 of earnings paid after March 12, 2020 and before January 1, 2021 per eligible employee.  This amount can include the employer portion of health benefits.  Basically, for every eligible employee who earned $10,000 or more during this time period would provide the employer with a $5,000 tax credit.


How Is The Credit Taken?

The COVID ERC is applied against the employer portion of payroll taxes.  


DISASTER-ERC

The Further Consolidated Appropriations Act signed on December 20, 2019 included an extension to the existing Employee Retention Credit for employers affected by qualified disasters that occurred during 2018 and 2019.  ERC or ERTC is a tax credit that has been around for years, specifically focused on areas of disaster.


Who Is Eligible?

Employers who operated in a qualified disaster zone and become inoperable due to the disaster and they continued to pay or incur wages for eligible employees.  Currently (as of June 2, 2020) these areas were predefined by President Trump and include 282 counties in the following states:


Alabama, Alaska, Arkansas, California, Florida, Georgia, Hawaii, Indiana, Iowa, Mississippi, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Texas, and Wisconsin.


How Much Is The Tax Credit?

D-ERC is a 40% tax credit for up to $6,000 of earnings paid to each eligible employee(making the maximum credit $2,400 per eligible employee).  


How Is The Credit Taken?

The Disaster ERC is a Federal income tax credit and should be filed with the employers tax return.


Summary

Most clients want to know "what do I qualify for".  Legislation related to Hiring Incentives is constantly changing due to the COVID-19 crisis.  We stay informed and educated about these constant changes and ensure that our clients get the highest amount on tax incentives possible.  The quickest way to know what you or your client would qualify for is to send the client to your GMG.Me page.  See here: How Does My Client Get Signed Up for ERC?