Revisions to the Employee Retention Tax Credit Program – May Be Worth a Second Look

Published in Government Relations on August 26, 2022

Several changes have occurred with the COVID-19 Employee Retention Credit (ERC) since its inception in 2020. If you or your tax advisor looked at this program when it was created in 2020 and decided that either you didn’t qualify for it or it wasn’t worth pursuing for some other reason, it may be worth taking another look because of the changes made to the program.

When the CARES Act was initially passed, it established the ERC which allowed eligible businesses to qualify for a tax credit if certain criteria were met. It was designed to help employers keep their staff employed, especially if their gross receipts declined by a certain percentage. At first, employers could qualify for a credit of up to $5000 per year for each of their employees based on wages paid between 3/12/2020 and 1/1/2021. They also had to show a 50% decline in gross receipts or have experienced a full or partial shutdown because of government limits on commerce. If they received a Paycheck Protection Program (PPP) loan, they couldn’t qualify for the ERC.

However, several changes have been made to the program since inception, and it is now easier to qualify for the ERC, and more tax credits are available now than in 2020. A few of the key changes to the program are as follows:

• The ERC tax credit could be up to $21,000 ($7000 per quarter for the first 3 quarters of 2021) per employee per year instead of the $5,000 that was previously available.
• Employers now only need to show that they experienced a shutdown or a 20% decline in gross receipts rather than the 50% decline that was required initially.
• Employers who received a PPP loan are no longer automatically excluded.

It is also worth pointing out that just because you already filed your taxes for 2020 and 2021, and the program technically had an expiration date of 10/1/2021, that does not mean that you can no longer apply for the ERC. Employers have 3 years to determine eligibility, and can retroactively apply for the tax credit at any point during those 3 years. The IRS has created and released a table which helps explain the program, including eligibility requirements and what is available to employers during which date ranges. That chart, as well as other information and resources related to the program, can be found here.

Please consult with your tax advisor to determine the best course of action for your business as it relates to this ERC.

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