Short guide covering all aspects of the Employee Retention Tax Credit (ERTC) and how it works with the Paycheck Protection Program (PPP). Read this to discover if you're eligible for the ERTC and how to go about maximizing the benefits you get from both programs.

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The ERTC and the PPP Simplified
The ERTC is a program in which the I.R.S. is compensating small
businesses which continued to employ W2 workers despite government
mandates in 2020 and 2021. The Paycheck Protection Program allowed
business owners to qualify for loans to cover their payroll costs during
the same time period.
Not Familiar with the ERTC Program?
Watch this Video First...
For all the details please continue reading the article provided below by
Dana S. Fried from CohnReznick
In this short document, we'll explain the Employee Retention Credit and
PPP (or ERTC vs PPP) and how you can maximize your bene ts from both.

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Text last updated 5/3 to re ect new information regarding 2021 Q3/Q4
and to clarify questions regarding 2020 and 2021 eligibility.
.
In early August 2021, the IRS released additional ERC guidance on
matters including whether the wages of a majority owner of a corporation
and their family members can be ERC-eligible; how various calculations
apply to businesses not open in 2019; whether forgiven PPP loan amounts
and other COVID-19 relief grant amounts should be included in the
"signi cant decline in gross receipts" test; and more .
Read our overview
Update 11/17: The bipartisan Infrastructure Investment and Jobs Act,
passed Nov. 15, 2021, has generally ended the fourth quarter availability
of the ERC for most employers. .
Read more here
Employee Retention Credit (ERC) now available for all of
2021, and PPP loan recipients can claim ERCs

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For 2020, certain employers whose operations were fully or partially
suspended due to a COVID-19-related government order or whose gross
receipts for any 2020 quarter were less than 50% of their gross receipts
for the same quarter in 2019 were eligible for a fully refundable federal
payroll tax credit called the Employee Retention Credit (ERC) for certain
wages paid in 2020 Quarter 2 (for ERC purposes, March 13-31, 2020, is
considered part of 2020 Q2), Q3, or Q4. However, if the employer or any
member of its controlled group received a Paycheck Protection Program
(PPP) loan, the entire controlled group was ineligible for an ERC.
The December provided for
both retroactive applicability of the ERC for 2020 and extending and
expanding the ERC for the rst two quarters of 2021, and liberalized the
ERC requirements for 2021. Signi cantly, it made it so that an employer
that did not take an ERC for 2020 because it or its controlled member
received a PPP loan may now be eligible for ERCs for 2020.
Consolidated Appropriations Act of 2021

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Now, as of the March 11 passage of the ,
. The newer Act extended the
availability of the ERC to the third and fourth quarters of 2021, each with
its own $10,000-per-employee maximum amount of Quali ed
Wages/Quali ed Health Plan expenses. However, the ERC will be a credit
against the Medicare tax for the third and fourth quarters, as opposed to
its previously being a credit against the Social Security tax.
American Rescue Plan Act the
ERC is available for all four quarters of 2021
The newer Act also added new ERC eligibility opportunities for 2021 Q3
and Q4 for “recovery startup businesses” and “severely nancially
distressed employers” – read more below – and extended the limitation
period on ERC-related assessments from three years to ve years from
the date of ling the applicable Form 941.
De nition of ‘eligible employer’
To receive an ERC, an employer must qualify as an “eligible employer.”
“Employer” here includes all members of a controlled group under IRC
Section 52 (e.g., for a parent and subsidiaries, based on a greater than
50% ownership test) or Section 414(m) (a liated service group) on an
aggregated basis.

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“Eligible employer” is de ned as:
an employer that:
For 2020,
(1) Fully or partially suspended its operations due to a governmental
order limiting commerce, travel, or group meetings due to COVID-19
(Employer is eligible to claim the ERC for the suspension period), or
(2) Had gross receipts for any 2020 quarter that were less than 50% of its
gross receipts for the same quarter in 2019. (Employer is eligible to claim
the ERC for the quarter with the decline in gross receipts and for the next
following quarter; eligibility ends for the quarter after the quarter for
which gross receipts return to greater than 80% of the gross receipts for
the same quarter in 2019 (unless that quarter has its own greater-than-
50% decline when compared to the same quarter in 2019).)
, an employer that:
For 2021
(1) Fully or partially suspends its operations due to a governmental order
limiting commerce, travel, or group meetings due to COVID-19 (employer
is eligible to claim ERC for the suspension period), or
(2) Has gross receipts for any such quarter or for the immediately
preceding quarter that are less than 80% of its gross receipts for the
same quarter in 2019.

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Q2, Q3 and/or Q4 (for Q2, including March 13 - March 31, 2020),
an employer can receive a credit equal to of the rst $10,000 of
Quali ed Wages paid per employee in the
. The maximum ERC for all of 2020 would be $5,000 per
employee receiving Quali ed Wages.
For 2020
50%
aggregate for all qualifying
quarters
, an employer can receive of the rst $10,000 of Quali ed
Wages paid per employee in . The maximum ERC
for each such quarter would be $7,000 per employee receiving Quali ed
Wages, and the maximum ERC for 2021 would be $28,000 per employee
receiving Quali ed Wages.
For 2021 70%
each qualifying quarter
‘Quali ed Wages’
What counts as “Quali ed Wages” is di erent for “small” and
“large employers.”
For All wages paid to and Quali ed Health Plan
Expenses paid for all employees for the applicable quarter.
small employers:
For Only wages paid to and Quali ed Health Plan
Expenses paid for employees for a period or periods that the employees
did not perform services for the employer.
large employers:
Amount of ERC

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“Quali ed Health Plan Expenses” are amounts paid or incurred by an
employer to maintain a group health plan that are allocable to Quali ed
Wages. (This amount includes employer payments plus employee
contributions made on a pre-tax basis.) Even if no wages are paid but
health plan coverage is provided (e.g., coverage is continued for
furloughed employees), the expenses constitute Quali ed Health Plan
Expenses and as such, are ERC-eligible.
The de nitions for “small” and “large” employer are also di erent for
2020 and 2021:
Small Employer:
Q2, Q3 and/or Q4 (for Q2, including March 13 - March 31, 2020):
For 2019, averaged or “fewer full-time employees” (average of 30
hours per week or 130 hours per month).
For 2020
100
: For 2019, averaged or fewer full-time employees.
For 2021 500
Large Employer:
Q2, Q3 and/or Q4 (for Q2, including March 13 - March 31, 2020):
For 2019, averaged more than full-time employees.
For 2020
100
: For 2019, averaged more than full-time employees.
For 2021 500

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The IRS con rmed in early March that
, such that the only
employees that will be counted are the ones who, with respect to any
calendar month in 2019, had an average of at least 30 hours of service
per week or had 130 hours of service in the month. Thus, employers with
many part-time employees that would have been “large employers” if
they were counted, but are “small employers” without them, will be able
to claim far greater ERCs as “small employers.”
the “full-time employee” test does
not take part-time employees into consideration
Additional ERC opportunities for 2021 Q3 and Q4: Recovery startup
businesses and severely nancially distressed employers
For 2021 Q3 and Q4 only, the added an
alternative eligibility standard if the employer is a “
,” which is de ned as follows:
American Rescue Plan Act
recovery startup
business
The employer began carrying on any trade or business after Feb. 15,
2020, and
The employer’s average annual gross receipts (as determined
under Section 448(c)(3)) for the up-to-three-year period before the
applicable quarter did not exceed $1 million.
Note that the ERC is limited to $50,000 per quarter for an employer that
is a recovery startup business.

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Also for 2021 Q3 or Q4 only, an employer with any number of full-time
employees in 2019 can qualify for “small employer” treatment if it
constitutes a “ ,” which is de ned
as:
severely nancially distressed employer
An employer that has gross receipts for a quarter that are less than 10%
of its gross receipts for the same quarter in 2019 (i.e., a gross receipts
reduction of more than 90%).
ERC/PPP interaction under the Consolidated Appropriations Act
Under the December Act, even where an employer received/receives a
PPP loan, the employer can still claim an ERC with respect to Quali ed
Wages. However, the same wages cannot be used both to qualify for
forgiveness of a PPP loan and as ERC Quali ed Wages. (The IRS has
stated in a Notice that the amount of Quali ed Wages included in
“Payroll Costs” reported on a 2020 PPP loan forgiveness application are
not 2020 ERC-eligible to the extent they were needed and used to obtain
PPP loan forgiveness; see for details.)
our full article

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3 possible scenarios in which an ERC would now be allowed include:
1) A controlled group member received a PPP loan and another member
of the same controlled group that did not receive a PPP loan wishes to
claim an ERC.
2) The employer’s Quali ed Wages were not provided by the proceeds of
a PPP loan.
3) The employer’s Quali ed Wages were provided by the proceeds of a
forgiven PPP loan for which forgiveness was not obtained with the same
wages that would be used as ERC Quali ed Wages.
Any advice contained in this communication, including attachments and enclosures, is not
intended as a thorough, in-depth analysis of speci c issues. Nor is it su cient to avoid tax-related
penalties. This has been prepared for information purposes and general guidance only and does
not constitute professional advice. You should not act upon the information contained in this
publication without obtaining speci c professional advice. No representation or warranty (express
or implied) is made as to the accuracy or completeness of the information contained in this
publication, and CohnReznick LLP, its members, employees and agents accept no liability, and
disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in
reliance on the information contained in this publication or for any decision based on it.

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Thanks for Reading!
The ERTC program can be quite lucrative for many
businesses. If you employed W2 employees during 2020
and/or 2021 and you were a ected by government shut-
downs or restrictions, you likely qualify.
See If You Qualify Now
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