This credit just got a whole lot better so don’t stop reading because you decided this credit was not valuable for you.
First, if you have not applied for your PPP loan, projections are that that money will run out by the first week in May, so apply now if you qualify.
You can claim the Employee Tax Retention Credit even if you got PPP loans, but, you cannot claim a credit for the same payroll used for your PPP loan forgiveness.
IRS says (in notice 2021-23) that for the first two quarters of 2021, organizations are eligible if they have a decline in gross receipts of 20% or more in the first or second quarter of 2021 (compared to the same quarters in 2019) or are subject to a full or partial government ordered shutdown due to Covid 19. For employers that were not in existence during 2019, they would calculate whether there was a decline from the first two quarters of 2020.
The 2021 credit is 70% of the first $10,000 of each employee’s wages ($7000 per employee) per quarter.
Employers with under 500 employees can request advance payment of the credit, while others will use the credit as a reduction of the employment taxes they are required to pay. IRS form 7200 is used to claim the advance payment. https://www.irs.gov/pub/irs-pdf/f7200.pdf Employers with over 500 employees will reduce the payroll taxes that they pay in quarterly.
The recently enacted American Rescue Plan extends the credit for the remainder of this calendar year, so there will be additional guidance from IRS on how this credit will apply on the 3rd and 4th quarters of 2021.
It is not too late claim the credit for 2020 if operations were fully, or partially suspended due to a government order or if your gross receipts in any quarter of 2020 were less than 50% of the same quarter in 2019. The 2020 credit is limited to 50% of up to $10,000 of wages, or a maximum of $5000 per employee per year. The 2020 credit also defined a small employer as one with 100 employees or less. For small employers all wages could count but for large employers, only salary continuation paid to employees who were not working could qualify.
So, if you looked at this credit before and said “nah”, look again. And if you decided that it was easier to apply for your PPP forgiveness using just payroll, think again because using less payroll and more other costs like rent will preserve more payroll for the Employer Retention Tax Credit.