By: Matthew Rak, Esq.
While many business owners are acutely aware of the forgivable Payroll Protection Program (“PPP”) loans under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act,” also known as the “first round”) and the Consolidated Appropriations Act (“CAA,” also known as the “second round”), it is also important to understand the Employee Retention Credit (“ERC”) and how these two programs interact with each other. This alert deals with retroactively claiming the first round ERC and a subsequent alert will address the second round ERC.
What is the ERC?
The ERC is a refundable employment tax credit, meaning that the excess credit will be refunded to the business as a cash payment. The first round ERC is equal to 50% of qualifying wages, capped at a maximum refundable credit of $5,000 per employee. Under the CARES Act, the ERC could not be claimed if the business obtained a PPP loan. However, the CAA changed this rule, allowing an employer to obtain both the PPP loan and the ERC for the first round. In other words, the first round ERC can be obtained retroactively without regard to whether a PPP loan was obtained.
How Do I Qualify?
The first round ERC eligibility requirements are summarized as follows:
- The company must have either:
- Experienced a drop of at least 50% of gross revenue in one 2020 quarter compared to the same 2019 quarter; or
- During the qualifying period (March 13, 2020 through December 31, 2020), operations must have been at least partially suspended by government order
- During the qualifying period, the company must have qualifying wages:
- Qualifying wages are:
- For companies with less than 100 full-time equivalent (“FTE”) employees, all wages
- For companies with more than 100 FTEs, only the wages paid to employees not to work
- Wages not paid by PPP loans
- Qualifying wages are:
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 firstname.lastname@example.org.
Leech Tishman’s Facebook Page: https://www.facebook.com/leechtishman
Leech Tishman’s Twitter: https://twitter.com/LeechTishman
Leech Tishman’s Company Page on LinkedIn: https://www.linkedin.com/company/leech-tishman
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.