What You Need to Know About the Employee Retention Credit

From McKonly & Asbury, LLP

For most businesses, the Employee Retention Credit has fallen into the category of, “nice idea, but doesn’t really apply.”  The reason for this was that if you took a Paycheck Protection Program (PPP) loan, you were not eligible for the Employee Retention Credit. If you didn’t take a PPP loan, there’s a good chance that’s because you have more than 500 employees and weren’t eligible. At this point, you may have looked at the Employee Retention Credit, but there probably wasn’t much (if anything) there as you would have had to either (a) been shut down by a government mandate or (b) had a revenue drop of 50% AND (c) paid people NOT to work. There aren’t a ton of businesses that fell into this category.

With the latest legislation though, EVERYTHING has changed. First, we’re going to start calling it the ERC, as I’m not sure how much more typing the whole thing out my fingers can take. Second, if you took a PPP loan, you can now take the ERC. At the risk of sounding dramatic, this is HUGE, particularly if you have fewer than 100 employees.

Here’s why – in Pennsylvania, all non-life-sustaining businesses had to close their physical locations on March 19, 2020. Many businesses received waivers to reopen, and the list of life-sustaining businesses was later revised, but if your PA business was, at any point in time, deemed a non-life-sustaining business, there is little argument that your operations were not fully or partially suspended during any calendar quarter in 2020 due to orders from an appropriate governmental authority. Thus, you qualify for Q1 2020. Plus, if you have fewer than 100 employees (measured as an average of 2019), ALL wages paid after March 12, 2020, qualify, and you are eligible for a credit of 50% of up to $10,000 of these qualifying wages.

SO WHAT DO YOU NEED TO DO?
You need to answer these two questions:

1. Is, or at any point in time was, your business deemed to be a non-life-sustaining business and forced to close its physical locations by PA mandate in 2020? Or, did your business’ revenue drop by more than 50% for any quarter in 2020?
2. Do you have fewer than 100 employees? Or, did you pay employees even though they couldn’t work (working from home counts as work)?

If the answer to these two questions is yes, let us help you dig further to see what’s there. Even if you got a PPP loan and received full forgiveness (or plan to), there’s a really, really, really good chance that you still have plenty of payroll costs that would be eligible for the ERC.

You can reach out to Mark Heath, Partner & Director of Tax Services, at McKonly & Asbury at mheath@macpas.com.