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Claim the Employee Retention Credit

UPDATE: With the new legislation, your business has the option to claim ERC credits from both from 2020, and 2021. Check the “Who is eligible?” section below to determine if your company can take advantage of this refundable tax credit. 

Credit claims from 2020:

Employers can claim the Employee Retention Credit (ERC)—a refundable tax credit for 50% of up to $10,000 in wages, per employee, per year.The credit is available for eligible employers whose businesses have been financially impacted by COVID-19. 

 

This is only effective for wages paid March through December 2020. If your company has 100 or fewer employees, you can claim the ERC in Gusto. If your company has more than 100 employees, do not claim the ERC in Gusto unless all employees are currently being paid, and none of them are working.

[NEW] Claims for 2021:

Employers can now claim the Employee Retention Credit (ERC) for 70% of up to $10,000 in wages, per employee, for quarters in 2021. The credit is available for eligible employers whose businesses have been financially impacted by COVID-19. 

 

This is only effective for wages paid Jan 1, 2021 through Dec 31, 2021. If your company has 500 or fewer employees, you can claim the ERC in Gusto.

 

Gusto is actively working on supporting this in our platform. Please check the COVID-19 tab in your Gusto account for updates.

Who is eligible? 

To be eligible, an employer must meet one of the following conditions:

  • Operations are fully or partially suspended during the calendar quarter due to a COVID-19 related government authority order.
  • [2020 eligibility] Gross receipts for a calendar quarter are <50% compared to the prior year, in 2019. Employers can claim the credit during the first quarter that they see this decline, until it recovers to 80% or more of the gross receipts for the same calendar quarter in the prior year.
  • [UPDATE JAN 2021] Gross receipts for a calendar quarter are <20% compared to the prior year. Employers can claim the credit during the first quarter that they see this decline, until it recovers to 80% or more of the gross receipts for the same calendar quarter in the prior year. With the update, you can also now use prior quarter gross receipts to determine eligibility.
  • [UPDATE MAR 2021] If employers were not in existence in the equivalent calendar quarter in calendar year 2019, they may substitute ‘2020’ for ‘2019.’
  • [UPDATE MAR 2021] Seasonal employers may substitute ‘the average quarterly wages paid by the employer in calendar year 2019’ instead of using the equivalent quarter in 2019. 
  • [UPDATE MAR 2021] New: $50,000 quarterly credit cap for businesses defined as a “Recovery Startup Business.” 
    • These are businesses that started operations after February 15, 2020, with no more than $1 million in annual gross receipts.

Who is ineligible?

  • Previously businesses that received a Paycheck Protection Program loan under the CARES Act were not eligible for this credit. 
  • [UPDATE 12/27/2020] Now employers who receive Paycheck Protection Program (PPP) loans may qualify for the ERC for wages that are not paid for with forgiven PPP loan money. If you previously received a Paycheck Protection Program (PPP) loan, you may now be able to retroactively apply these credits.
  • Some government employers.
  • Recipients of the new restaurant revitalization grant and/or the shuttered venues grant.

Claim the ERC in Gusto

  • Go to the COVID-19 section in your Gusto account.
  • Click Claim credit on the tile called “Claim the employee retention tax credit.”
  • Read through the FAQs and eligibility requirements. When you’re ready to move forward, click Claim credit.
  • Select the calendar quarter that you’d like to claim the ERC and click Claim credit.

Once you’ve claimed the credit, you can make changes in the same tile from the COVID-19 section of your account by clicking Update your claim.

After you claim the ERC, you’ll see a confirmation page with details and reminders.

Claim the ERC retroactively in Gusto

To claim ERC retroactively in Gusto, follow the steps above and select the previous quarters you were eligible to receive the credit for. Gusto will apply your credit retroactively to any payrolls that were run once you became eligible. We will amend your quarterly filings to reflect this credit, once the amendments have been processed by the IRS you will get a refund

Go to the Help section of your Gusto account to contact our team for totals.

Please note: Gusto does not have the ability to partially apply the Employee Retention Credit within  a specific quarter. Our system is not able to determine which wages were used for PPP and which wages were not; instead, it will take into consideration all of the wages from the applicable quarter. If you were eligible for the credit for a portion of a specific quarter you will need to file an amendment to your 941  outside of Gusto to claim the credit, you may need to work with a CPA to do this.

What are qualified wages?

  • Qualified wages under the ERC include qualified health care costs. Qualified wages can't exceed $10k per employee on a cumulative basis over all quarters in 2020 or $10k per employee for each quarter in 2021, whether or not they include health care premiums.
    • 2021: Eligible employers can include amounts to maintain a group health plan if these amounts are excluded from the gross income of the employees.
  • Wages paid for Emergency Paid Sick Leave or Expanded Paid Family Leave are not eligible for the ERC if you take the tax credit under the Families First Coronavirus Response Act. We will not apply the credit to paid leave wages, but will apply the ERC credit to regular wages. 
  • Employees who receive a Work Opportunity Tax Credit (WOTC) are not eligible.
  • Wages paid to family members of employer who is an individual (sole proprietor or partner), or is related to someone who owns more than 50% of a corporation:
    • A child or grandchild;
    • A brother, sister, stepbrother, or stepsister;
    • The father or mother, or an ancestor of either;
    • A stepfather or stepmother;
    • A niece or nephew;
    • An aunt or uncle;
    • A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
  • Excludes wages for services performed by an inmate in a penal institution.
  • Wages for certain owners of businesses.

If some of your employees’ wages are ineligible for ERC, you can’t apply the credit in Gusto. You’ll need to amend your Federal form 941 outside of Gusto to claim a refund for the amount of the allowable credit. More information on qualified wages can be found here.

How are credits applied?

We will apply your accrued credits to the 6.2% Social Security tax that employers are required to pay on wages—meaning we will not debit your account for that amount.

  • Effective July 1, 2021 - December 31, 2021 the ERC will be applied against Medicare tax.

Any excess credits you’ve accrued can be reported on Form 7200 to be refunded by the IRS before the end of the quarter. If you do not file for an advance payment through Form 7200 during the quarter, Gusto will report your remaining credit amount on your 941 and the IRS will refund you at the end of the quarter. 

  • Each time you file Form 7200 to the IRS, you’ll need to report credits claimed to Gusto so that we can have accurate data for filing. 

Heads up!

The IRS does not accept amended/corrected Form 7200, mistakes will be reconciled by the IRS at the end of the quarter.

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