Employee Retention Credit (ERC) for 2020 Wages - Simplified! - YouTube

Hello and welcome back to TaxCrunch. My  name is Christopher Volas, and I've been  

presented recently with a couple questions  on the Employee Retention Credit, or ERC's.  

So I figured I'd make a couple  quick videos addressing the topic,  

since reading on the topic makes  the average person respond like

So I'll split this into 2 videos. The 1st will  address the ERC wages paid in the year 2020, and  

the 2nd video will address the ERC and the rule  changes for the wages paid in the year 2021. So in  

this video we'll discuss the original ERC that was  created back in March of 2020. It's effective for  

any wages paid after March 12th through the end  of the year December 31st 2020. The new tax relief  

act passed in December of 2020 revises some of the  rules for the original ERC, so even though we're  

now in 2021, you can still amend payroll returns  for 2020 and get that ERC and get a tax refund.  

So what is the ERC? It is just what it sounds  like - it's a tax credit rewarding employers for  

retaining employees during the COVID-19 crisis.  It's just another way to subsidize workers and  

help ease the strain on the unemployment system  - by keeping people employed. So who's eligible?  

Well, first keep in mind this credit is broken  down by quarter. So if you meet the eligibility  

requirements for just 1 quarter - you'll get the  tax credit for that quarter. While some others  

might meet it for every quarter. So think of this  credit as an opportunity, a separate opportunity,  

in each quarter - to grab the tax credit. So in  2020 you have 4 quarters, but the 1st quarter  

is extremely shortened - because the credit's only  available for wages paid after March 12th. So they  

only have 18 days available in that 1st quarter  - but the remainder of the 3 quarters are all  

full 3 month periods. So in order to be eligible  for the ERC for any particular quarter in 2020,  

one of two things has to have happened. Either  you had to be partially or completely shut down  

by a government order, or your gross receipts,  your revenues, had to decrease by 50% or more  

compared to that same quarter in the prior year.  So if you're looking at the 3rd quarter of 2020,  

your receipts had to have decreased  by 50% or more than the 3rd quarter of  

2019 - and you'd be eligible for that quarter. If  either of those conditions did not apply in 2020,  

you're not eligible for the ERC  and you can leave the video now.  

Michael? Oh hey Toby - could you  close the door on your way out?  

And another thing, if your business averaged over  100 full-time employees in the year 2019 - the  

only eligible wages for the ERC are those that  were paid to employees that were not working.  

So this truly is rewarding the employers that  were paying employees that were not able to work.  

If you had 100 or fewer employees in 2019, average  full-time employees, all the wages are eligible.  

So if your business had more than 100 full-time  employees in 2019 your accountant has probably  

handled this issue already. If they haven't,  you have bigger problems to address - so  

you can leave this video now too. Get the hell  out of here! Nice, nice manners babe! Alright,  

so everyone who has employees knows that they  file a 941 form with the IRS every quarter  

to report the wages, the taxes withheld, and  the employer taxes. If you're eligible for this  

credit in that quarter, you can amend that 941 to  reflect the ERC and get a refund. So what is the  

credit? The credit is 50% of the wages for each  employee up to $10,000 per employee, per year.  

So, essentially the credit maxes out at  $5,000 per employee. So, in addition to  

analyzing each quarter separately - you'll also be  analyzing each employee separately each quarter.  

Now technically, the credit is just based on  the employer portion of the social security  

tax - which is 6.2%. But the ERC is much  larger than that so the remainder is either  

applied to the other taxes on the return - or it's  refunded if all the taxes have already been paid.  

So the new tax relief issued in December of 2020  has revised some of the rules on this 2020 ERC.  

Previously, if you received a PPP loan,  you were not eligible for the ERC.  

Now you are. You still can't double dip. So if  you're getting loan forgiveness on those PPP  

loans, those wages that are calculated in that  PPP loan cannot be also calculated for the ERC.  

But, the PPP loan does not cover the whole year  2020 - so it's very possible that you'll have  

some portion of the 2020 year eligible for the  ERC as well. Also, health insurance expenses  

paid for employees - but not included in wages  - are added to the calculation for the ERC.  

This also includes health care expenses paid  for furloughed employees. Now, if you're an  

S Corp owner - yourself and your spouse can  include your wages in the ERC calculation.  

The only ones that would not be included would be  other family - parents, children, grandparents,  

nephews and nieces of any shareholder that owns  over 50% of the S Corp. Those are the only ones  

that would be excluded. So, in summary, have  your CPA check out your 2020 numbers, your 2020  

payroll, to see if you're eligible for this ERC -  amend those payroll returns - get a cash refund.  

Check out my 2nd video to see about the  rules and the eligibility for the 2021 ERC.  

Subscribe to the YouTube channel, and thanks  again for being part of the TaxCrunch community.