Eligibility Requirements for the Second Round Employee Retention Credit (ERC)

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By: Matthew Rak, Esq.

On January 13, 2021, businesses could begin applications for Second Draw PPP Loans under the Consolidated Appropriations Act (“CAA,” also known as the “second round”). It is also important for businesses to understand the Employee Retention Credit (“ERC”) and how these two programs interact with each other.

This alert addresses eligibility requirements for the second round Employee Retention Credit (ERC) discussed in our prior client alert. This refundable tax credit provides up to 70% of qualifying wages, resulting in a maximum credit of $7,000 per employee, per calendar quarter. Rather than being a one-time payment, the second round ERC can be obtained for the first two quarters of 2021, resulting in a total possible credit of $14,000 per employee.

The second round ERC eligibility requirements are relaxed from the those of the first round, so many employers who didn’t qualify for the first round ERC may be able to qualify for the second round ERC.

The second round ERC requirements summarized as follows:

Financial Qualification

  • The company must have either:
    • Experienced a drop of at least 20% (compared to 50% in the first round) of gross revenue in the same 2020 quarter compared to the 2019 quarter; or
    • During the qualifying period, operations must have been at least partially suspended by government order

Calculating the Credit

  • During a qualifying period beginning on or after January 1, 2021 and ending on or before June 30, 2021, the company must have qualifying wages. Qualifying wages are the lesser of the wages paid or of $10,000 per employee, per quarter and must not be the same wages paid by PPP loan proceeds. The credit is equal to 70% of qualifying wages.
    • All wages for companies with less than 500 (as opposed to 100 in the first round) full-time equivalent (“FTE”) employees qualify; and
    • For companies with more than 500 FTEs, only the wages paid to employees not to work qualify

If you would like more information on this credit or other coronavirus relief options for small businesses, please contact Matthew Rak.

Matthew Rak is a Partner with Leech Tishman and a member of the Estates & Trusts Practice Group and Taxation and Energy Groups. He also is Chair of the Nonprofit Organizations Group. Matt is based in the Pittsburgh office and can be reached at 412.261.1600 or mrak@leechtishman.com.

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, aviation & aerospace, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York, Philadelphia, Sarasota and Wilmington, DE.