By Peter Hansen, Franchise Ramp President
Back in 2020 when the pandemic first hit, the CARES Act rolled out the Paycheck Protection Program (PPP). While many of us were able to take advantage of this SBA-backed loan, another simultaneous piece of legislation was introduced that, while lesser-used among franchisees, now has the potential of bringing eligible employers even greater savings.
The Employment Retention Credit (ERC) is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021.
I’ll be discussing the importance of claiming the Employee Retention Credit for 2020 and how it relates to eligibility for the Paycheck Protection Program.
What is the Employee Retention Credit (ERC)?
ERC is a refundable credit (i.e. money in your pocket) based on wages paid to your employees. Employers with significant part-time workers, especially in service-based franchises, could see tremendous benefit from this tax credit. ERC is available to employers whose operations have 1. Been fully or partially suspended because of a government order limiting commerce, travel, or group meetings and 2. Experienced a greater than 50% reduction in quarterly receipts in 2020 or 20% reduction in quarterly receipts in 2021, measured against the respective 2019 quarters. For 2020, refunds may be immediately available for a maximum of $5,000 per employee receiving qualified wages.
ERC: Extended and Expanded
Before December 27, 2020, employers could only be considered eligible for PPP or ERC.
While December’s stimulus package revived the PPP, allowing businesses that got PPP loans last year to apply for a “second draw” if needed, another significant amendment was made to retroactively expand eligibility for the employee retention credit.
Thanks to the December Consolidated Appropriations Act of 2021, employers can now be provided both retroactive applicability of the ERC for 2020 and extending and expanding the ERC for the first two quarters of 2021. An employer that did not take an ERC for 2020 because they received a PPP loan may now be eligible for ERCs for 2020 as well.
What This Means to Franchisees
I firmly believe informed franchisees are successful franchisees. While the benefits are extraordinary, evaluating qualifications, computing the ERC, and filing for the credit through the payroll reporting process can be complex.
While Your CPA will know these rules, it’s important to be your own advocate. Here is a link to the IRS Guidance on the Employee Retention Credit under Section 2301 of the CARES Act.
As many of us begin to see the light at the end of the tunnel, I hope you’ll consider the opportunity to obtain an ERC looking back to 2020 and forward to 2021!
-Peter Hansen
