The ERC is available to eligible employers who have experienced a significant decline in gross receipts or were forced to fully or partially suspend their operations due to government restrictions.
One of the key components of the ERC is qualified wages. In this blog post, we will discuss what qualified wages are and how they are calculated.
Qualified wages are defined as wages paid by an eligible employer to its employees between March 13, 2020, and December 31, 2021. For the purposes of calculating qualified wages, there are two categories:
Large Employers For large employers with more than 500 employees, qualified wages include only those wages paid to employees who were not providing services due to either a full or partial suspension of operations or a significant decline in gross receipts.
Small Employers For small employers with less than 500 employees, all wages paid during the covered period qualify for the credit, regardless of whether they provided services or not.
The amount of qualified wages is determined based on the average number of full-time employees (FTEs) that an employer had during either 2019 or 2020. If an employer had an average FTE count greater than 500 in either year, then only those wages paid to non-working employees would be considered qualified.
For small employers with fewer than 500 FTEs in both years, all wages paid during the covered period qualify for the credit.
It’s important to note that there is a cap on the amount of qualified wages that can be claimed per employee per quarter.
For example, for Q1 and Q2 of 2021, employers can claim up to $10,000 in qualified wages per employee per quarter.
Conclusion:
Qualified wages play a crucial role in determining eligibility for and calculating the amount of Employee Retention Credit that businesses can claim. It’s important for eligible employers to understand how these wages are defined and calculated so that they can maximize their credit while remaining compliant with IRS regulations.