The CARES Act introduced tax credits for maintaining your payroll. In 2020, it entitled employers to a credit worth 50% of the qualified wages of employees. But in 2021, this amount has been increased to 70%.
The ERC for 2020, as originally passed by the CARES Act, offers a maximum credit to businesses of $5,000 per employee.
What wages qualify?
- Wages must be paid between March 12, 2020 and December 31, 2020.
- Health benefits paid for employees also qualify.
- The maximum credit is 50% of the first $10,000 paid to each employee.
- The same wages cannot be used to claim both the ERC and PPP loan forgiveness.
- For businesses with less than 100 full-time employees, all wages qualify for the credit. For businesses with more than 100 full-time employees, only wages paid to employees who are not performing services will qualify.
- Wages must be paid in a qualifying quarter.
What is a qualifying quarter?
- A quarter in which business operations are fully or partially suspended by government order.
- The wages must be paid during the period of shutdown. If a shutdown is in effect from May 1 through May 31, only wages paid during those dates will qualify.
- A quarter in which the business experiences a significant decline in gross receipts.
- A decline in gross receipts is defined as a quarter in which gross receipts are less than 50% of the corresponding quarter in 2019.
- A business will continue to qualify until the completion of a quarter in which gross receipts reach 80% of the 2019 amount.
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