Law & Order

Time to Take Advantage of the Employee Retention Tax Credit

By SEMA Washington, D.C., Staff

SEMA members are urged to take advantage of a COVID-19 economic relief program enacted in 2020 and expanded in 2021—the Employee Retention Tax Credit (ERTC). The ERTC is meant to help employers that suffer significant financial losses or that were fully or partially closed due to a government order but continue to pay workers who are unable to perform their duties.

  • 2020: The tax credit is equal to 50% of up to $10,000 in qualified wages paid between March 12–December 31, 2020. The total credit is capped at $5,000 per employee and applies against employment taxes on wages paid to all employees. There is a 100-employee limitation. Credit available if:
  1. Employer had a fully or partially suspended operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority due to COVID-19; or
  2. Employer experienced a significant decline (more than 50%) in gross receipts during the calendar quarter.
  • 2021: The tax credit applies to all four quarters of 2021. The credit is now equal to 70% of up to $10,000 in qualified wages per quarter (including health plan expenses). This means the tax credit is potentially $28,000 per employee ($7,000 for each quarter). Employers who have experienced a 20% or more decline of gross receipts in a quarter compared to the same quarter in 2019 can apply. For 2021, the size limitation was increased to employers with 500 or fewer employees (up from 100 workers).

Employers claim the ERTC by withholding payroll taxes for qualified employee wages. Because the tax credit is refundable, if the withholdings do not cover the entire tax credit, the IRS will send you a check for the remaining amount.

Under the expanded ERTC program, a business that obtained a PPP loan can claim the ERTC provided that wages paid with PPP funds are excluded for the purpose of calculating the ERTC.  

The IRS issued new guidance for employers on the rules that will apply to the ERTC for the first two quarters of 2021: https://www.irs.gov/pub/irs-drop/n-21-23.pdf.  

Additional IRS coronavirus relief information is available at the IRS website.