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Changes to Employee Retention Credit (ERC) for First and Second Quarters of 2021

Modifications to the gross receipts test  

For purposes of the first and second quarter 2021 ERC, an employer is eligible if they have a 20% reduction in gross revenue during the current or preceding quarter.  For first quarter 2021, you would compare first quarter 2021 to first quarter 2019 to determine if you have a 20% reduction in gross revenue.  If you do not have a 20% reduction, you would compare fourth quarter 2020 gross revenue to fourth quarter 2019 gross revenue to see if there is a 20% reduction. 

The other way to qualify for the ERC is if you have been completely or significantly shutdown due to government order.  For this category, you would qualify for ERC during the period of government shutdown which would not necessarily be a full quarter.

If you do not have a 20% reduction in gross revenue during the current or preceding quarter and you were not subject to a government shutdown, you do not qualify for the credit.

There are special rules if you are a new business.

Increase in the maximum credit amount from 2020   

If you qualify, the ERC equals 70% of qualified wages that an eligible employer pays during the calendar quarter. The maximum amount of qualified wages an employer may use to calculate the ERC is $10,000 per employee. Thus, the maximum ERC is $7,000 per employee per quarter.

Non-qualifying wages

  • Family members of the business owner who are receiving wages do not qualify for the ERC.
  • If you received a PPP loan during the quarter, you can not use the same wages for ERC and PPP loan forgiveness.
  • The ERC has been extended through the end of December 2021.  There may be different requirements for the third and fourth quarters.

This is a complicated topic. Please contact our office if you have questions.