One of the more confusing aspects of the ERC program is that the requirements differ slightly between 2020 and 2021.
Luckily you have us as experts to guide you through what those differences are so you can figure out which periods you might qualify for.
If you want to claim an ERC refund for any of the allowed quarters in 2021, at least one of the following situations must apply to your business:
It's only on the third requirement—the one about declining gross receipts—that actually differs from the 2020 requirements. The 2020 requirement for gross receipts was actually more strict and harder to qualify for.
The change to the requirement in 2021 makes it easier for more businesses to qualify.
Another way the ERC credit for 2021 is different than for 2020 is in how the eligibility periods are structured.
In 2021, the amount you can claim essentially renews each quarter for the first three quarters. Additionally, the percentage of an employee's wages that you can claim is also higher and more generous.
So what exactly are these more generous terms?
Well, instead of 50% of the $10,000 of each employee's wages for the whole year, you're actually able to claim 70% of their first $10,000 in 2021.
And because that $10,000 resets each quarter, you can claim $7,000 per qualified employee in Q1, $7,000 per qualified employee in Q2, and $7,000 per qualified employee in Q3. That leads to a grand total per employee total for 2021 of $21,000.
In order to determine your qualified employee wages, you'll need to look back at how many full-time, W2 employees you had in the corresponding 2019 quarter.
If you had 500 or less full-time W2 employees in any of the first three quarters in 2019, then your claim for the same quarter in 2021 can include all of your employee wages.
Even though the determination is based on your full-time employees, you actually get to also count the first $10,000 in wages each quarter for all of your part-time employees as well.
However, if your business had over 500 full-time W2 employees in any quarter of 2019, then not all of your employee wages will qualify as part of your claim.
While it is still possible to count both full- and part-time employees in this situation, you can only count the wages paid to employees who didn't provide service.
That might sound a little confusing, so here's an example of what we mean.
In Q1 of 2019, your business had over 500 employees. However, in Q1 of 2021, several of your employees had their hours reduced due to the pandemic. One of these employees, Susan, was only able to work 10 hours a week. However, you still paid her for a full 40 hours.
In this situation, you would only be able to count 30 of Susan's hours, since those were the ones you paid even though she didn't actually perform any of her job functions during that time.
Now, if you still aren't totally sure how these requirements and rules for 2021 actually apply to your business's ERC claim, there's no need to worry!
We can help you determine if your business meets any of the three main qualifications for an ERC credit for the first three quarters of 2021. We're also experts at figuring out which employee wages qualify and can be claimed based on the size of your business.
So, if you'd like a better understanding of these 2021 requirements, or you'd like to learn more about what comes next, go ahead and contact our team of ERC experts here at ERC Go!