In this transcript from a video by Steven J Wick & Associates PC, Steve Wick discusses how the Employee Retention Credit (ERC or ERTC) works, who qualifies, and how the rules changed over time—especially for businesses that also received PPP loans. The video addresses common questions such as is the employee retention credit taxable income, eligibility requirements based on revenue decline or shutdown orders, and how much the credit is worth for both 2020 and 2021.
To learn more about how the employee retention credit impacts your taxes and whether it counts as taxable income, check out our detailed article on is the employee retention credit taxable income.
This video is provided by Steve Wick of Steven J Wick & Associates PC, an accounting firm based in Fort Collins, and is intended for educational purposes only. It does not constitute legal or tax advice, and we strongly recommend contacting a qualified CPA to discuss your specific situation.
Transcript
Overview of ERC and PPP Restrictions
One of the main issues early on was that businesses could not claim the Employee Retention Tax Credit and receive a PPP loan in the same year. Because PPP loans were generally a much better deal, most businesses chose PPP, and fewer than one percent of eligible businesses applied for the ERTC at that time. As a result, the retention tax credit was largely overlooked during its initial rollout.
Legislative Changes Allowing Both PPP and ERC
When Congress passed the Consolidated Appropriations Act in December 2020, they recognized this issue and changed the rules. Under the updated law, businesses that received a PPP loan in 2020 could also qualify for the Employee Retention Credit. This change allowed businesses to go back and amend their 2020 payroll tax returns for qualifying periods in order to claim the credit retroactively.
ERC Qualification Requirements for 2020
To qualify for the Employee Retention Credit in 2020, a business had to meet one of two criteria. The first was being subject to a government shutdown order that fully or partially suspended operations. Partial shutdowns also qualified, such as restaurants that could offer takeout but were prohibited from indoor dining.
The second qualification method was based on revenue decline. If a business experienced a drop in gross receipts of 50 percent or more in any quarter compared to the same quarter in 2019, it qualified for that quarter. Once qualified, the business continued to qualify until its revenue recovered to more than 80 percent of the comparable 2019 quarter.
Limitations Related to Remote Work
If a business was shut down but employees were still able to work from home without interruption, the business generally did not qualify for the credit. While the ERC can appear straightforward on the surface, there are many technical details that must be carefully reviewed before claiming it.
ERC Credit Amount for 2020
For 2020, the Employee Retention Credit was equal to 50 percent of qualified wages, up to the first $10,000 of wages per employee for the entire year. This meant a maximum credit of $5,000 per employee for 2020. Businesses that qualified could potentially claim this credit by amending their payroll tax filings.
Expanded ERC Benefits for 2021
For 2021, the ERC became significantly more generous. Eligibility could be determined by comparing quarterly revenue to either the same quarter in 2019 or, in some cases, the immediately preceding quarter. A revenue decline of 20 percent or more was sufficient to qualify.
In addition, the credit percentage increased from 50 percent to 70 percent of qualified wages. The wage cap of $10,000 applied per employee per quarter rather than per year. This allowed businesses to claim up to $7,000 per employee per quarter for the first and second quarters of 2021, provided they met the eligibility requirements.
Ownership and Family Wage Restrictions
There were also corrections expected to clarify that wages paid to business owners, their spouses, and certain related individuals do not qualify for the Employee Retention Credit. However, wages paid to other employees generally remain eligible under the rules.
Conclusion: Is the Employee Retention Credit Taxable Income?
Understanding is the employee retention credit taxable income and how ERC rules apply to your business requires careful analysis of revenue history, payroll records, and ownership structure. While the credit can provide substantial financial relief, improper claims can lead to compliance issues or future IRS scrutiny. A Fort Collins CPA with experience in ERC matters can help determine eligibility, properly amend payroll tax returns, and ensure the credit is handled correctly for tax reporting purposes. For personalized guidance, businesses should consult directly with a qualified CPA who can evaluate their specific circumstances.
