ERC Miniseries – Part II – The History
Welcome back to the Employee Retention Credit Miniseries! We hope this series captures the hearts, minds, and awards that Ted Lasso and The Crown competed for last night at the Emmy’s! Well, maybe that is a bit of an overreach for a nonprofit accounting blog, but a girl can dream, right?
If you didn’t check out the first installment in the series about the latest and greatest news on ERC last week, take a peek so you are up to speed! This post covers a bit of relevant history and context on Employee Retention Credits for those who are new to the idea or want to affirm the basics.
- Timeline:
- March 27, 2020: Employee Retention Credits (ERC) became available under the CARES Act, though the Act precluded organizations from receiving both Paycheck Protection Program (PPP) loans and ERC. As the sizing of the PPP loans was larger than the credits in nearly all cases, very few tax-exempt organizations pursued ERC. Note that some nonprofits, namely 501(c)(6) associations could not receive PPP loans initially, so some of those organizations did pursue ERC in 2020.
- December 27, 2020: The Consolidated Appropriations Act (CAA) was signed and included provisions allowing organizations to receive both PPP and ERC, and establishing the Q1/Q2 2021 credits with greater benefits and lower drops in gross receipts required to meet eligibility thresholds.
- March 1, 2021: The IRS issued Notice 2021-20, the most substantial guidance issued on ERC, providing definitions and examples, particularly on the interpretation of partial shut-downs and eligibility.
- March 11, 2021: The American Rescue Plan Act (ARPA) was signed and included expansion of the Employee Retention Credits for Q3 and Q4 of 2021.
- August 4, 2021: The IRS issued Notice 2021-49, providing additional guidance related to employee retention credits, though little of the guidance is relevant for tax-exempt organizations.
- 2021 Q4 – Quick Heads Up: While the ARPA did establish that ERC would be eligible through Q4, 2021, the Infrastructure bill passed by the Senate in early August, includes removing the Q4 2021 credits as a means to help pay for the bill. As of the date of this blog, the bill has yet to be passed by the House of Representatives, though it could be. If it is, the Q4 2021 credits will no longer be available, but organizations can still claim eligible credits from March 13, 2020 – September 30, 2021.
- 2020 vs. 2021 credits overview: The next post in this series will review some of the basics of ERC, but we wanted to wet your appetite with a quick visual on the 2020 vs. 2021 credits.
| 2020 | 2021 | |
| Covered dates (based on date paid) | 3/13/20 – 12/31/20 | 1/1/21 – 12/31/21* |
| Fulltime employee limits | >100 employees = large employer [only eligible for those paid but not working] | >500 employees = large employer [only eligible for those paid but not working] |
| Quarterly revenue decline vs. same quarter of 2019 OR | >50% | >20% |
| Partial or full government shut-down | Actual dates organization was shut-down by government order | Actual dates organization was shut-down by government order |
| Maximum eligible wages + healthcare cost per employee | $10,000/year | $10,000/quarter |
| Percent of wages and healthcare costs eligible for credit | 50% | 70% |
| Maximum annual credit/employee | $5,000 | $28,000* |
Thanks for tuning in! Catch us in the coming days for our third installment: back to basics – covering all of the most common questions we get when working with nonprofits on ERC.
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