The Employee Retention Credit was part of the CARES Act designed to help small to medium businesses during the COVID-19 pandemic. The basic aim was to provide a credit worth $7000 per employee, per quarter (for the first three quarters of 2021). There was also a benefit for 2020.

As you might imagine it wasn’t, and isn’t a simple credit to collect. According to Roll Call, a publication that covers the U.S. Congress, the Congressional Budget Office Director wrote an influential Senator in July 2021 that “ …out of an estimated $85 billion cost combining the initial credit and two subsequent rounds of extensions and modifications, just $18.4 billion in employee retention credits had been claimed through the first quarter of 2021.”

There was conjecture that this was related to the plethora of government stimulus programs within the CARES Act but it is equally as likely that the complexity of claiming the credit was part of the problem. Not every company was (or is) eligible. Yet many companies did not get money that was meant from them and money they can still claim. It is still possible to file a claim retroactively. Companies should seek assistance in claiming their credit when they lack the expertise on staff to do so. 

Originally the credit was supposed to apply to all four quarters of 2021 but, according to Roll Call, it was revoked for the final quarter of the year as an offset for the infrastructure law. The ERC was considered underutilized. The same Roll Call article, from February 7, 2020 even discussed the possibility of bringing the credit back. Nothing has been done to make this a reality in the past 6 months. 

Who is eligible for the credit?

Companies whose operations were disrupted—fully or in part—by an order from the government are eligible. Likewise, companies who suffered a serious downturn in income in one of the first three quarters of the year, can claim the credit. A 20 percent drop in gross receipts compared to the same quarter in 2019 is enough to be eligible.

More information is available at https://www.irs.gov/coronavirus/employee-retention-credit and https://rollcall.com/2022/02/07/democrats-mulling-revival-of-employee-retention-tax-credit/

Contact us at michelle@hitollc.com for a free consultation.