$14,000 tax Credit Per Employee. Don’t miss it!

New legislation means new benefits for agency owners!

Under the Consolidated Appropriations Act passed in December, you’re now eligible for both PPP loan money AND tax credits for employees.

Here’s everything you need to know about the Employee Retention Tax Credit (ERC) and what it means for you.

What is the Employee Retention Tax Credit (ERC)?

The Employee Retention Tax Credit is a refundable tax credit (up to $7,000 per employee per quarter for Q1 & Q2 of 2021) that you redeem through your payroll tax returns.

Why haven’t I heard about this before?

Well it’s new, sort of. The CARES Act made you chose: PPP or Employee Retention Credit. For most agencies PPP was the no-brainer because it offered more direct cash.

Under the recently-passed Consolidated Appropriations Act, congress removed the PPP restriction to be eligible for the Employee Retention Tax Credit and increased the amount of the benefit!

Determining if you are eligible:

You are eligible for ERC if revenue fell 20% during Q1 or Q2 of 2021, as compared to either the same quarter in 2019 OR the previous quarter.

So, you can claim the credit if revenue for Q1 of 2021 is 20% lower than Q1 of 2019 (the previous quarter) or Q4 of 2020 (the same quarter in 2019). And you can claim again if revenue for Q2 of 2021 is 20% lower than Q1 of 2021 or Q2 of 2019.

Here’s an example:

Agency A has revenue of:

  • $80,000 – Q1 2021
  • $100,000 – Q1 2019
  • $120,000 – Q2 2021
  • $150,000 – Q2 2019

Agency A shows a decrease in revenue by 20% in both Q1 and Q2 2021 as compared to the same quarters in 2019.

Agency A has a payroll of:

  • 5 employees – each making $15,000 per quarter ($60,000 annualized salary)

Remember: The Employee Retention Credit allows a tax credit of 70% for up to $10,000 per employee per quarter, or up to $14,000 total per employee.

Agency A receives a tax credit of $7,000 per employee per quarter for the first half of 2021.

$7,000 x 5 employees x 2 quarters = $70,000!

What’s the catch?

 The restriction to this money is that you cannot use PPP 2.0 funds for the same payroll-related costs that the Employee Retention Credit is used for.

This can make it tricky to know which option – PPP or ERC – is better for your agency. Your CPA can help you run the numbers and clarify this based on your unique situation.

 If you believe you are eligible, notify your payroll provider and start the conversation with your CPA. They will provide you with the steps to apply through your payroll tax return filing.

If you’re not already working with one, chat with a CPA today to make sure you don’t miss out on this valuable, limited-time benefit.


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