Employee Retention Tax Credit – Justworks Help Center

Update as of November 8, 2021

In August, the Senate passed a $1.2 trillion bipartisan bill, called the Infrastructure Investment and Jobs Act, geared toward improving the country’s infrastructure. One of the mechanisms for funding these improvements is advancing the end date of the ERTC program to September 30, 2021 for all reasons except the Recovery Startup Business (RSB) reason. This would mean that businesses could not opt into the ERTC program starting October 1, 2021 using the "Suspended Operation" or "Decline in Gross Receipts" reasons.

The House of Representatives passed the same bill on Friday, November 5, 2021 with no changes and President Biden is expected to sign shortly after Congress returns to session on November 15, 2021. As such, only companies that qualify under the RSB reason will be able to enroll in the ERTC program for Quarter 4 (Q4) 2021.

Companies that meet either the “suspended operations” or “decline in gross receipts” test do not qualify as a recovery startup business and should not select that option.

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First passed as part of the CARES Act, the Employee Retention Tax Credit (ERTC) helps employers keep employees on payroll by providing tax credits based on qualified wages. To ensure that your business is taking full advantage of the relief offered by ERTC, we also encourage you to talk about this program with your accountant and or tax advisor.

In 2020, the credit was 50% of qualified wages and applicable health costs, with a cap of $10,000 on qualified wages per eligible employee . Under The Consolidated Appropriations Act of 2021 (i.e. the December 2020 COVID-19 relief bill), the credit was increased to 70% and the cap on qualified wages was increased to $10,000 per eligible employee per quarter. With the passage of the American Rescue Plan (ARP) in March 2021, this was extended through December 31, 2021. However, with the passage of the Infrastructure Investment and Jobs act in November 2021, only Recovery Startup Businesses (RSBs) could receive these credits from October 1, 2021 and onward.

In 2020, to qualify, companies must have experienced either:

(i) a complete or partial closure due to government orders limiting commerce, travel or group meetings as a result of COVID-19 or

(ii) a significant decline (at least 50%) in gross receipts.

Under the new rules, a 20% decline in gross receipts will suffice for the first and second quarters of 2021. Previously, businesses could not opt into this program if they participated in the Paycheck Protection Program (PPP), which is no longer the case. Instead, employers are now barred from using the same wages to claim employee retention tax credits as they use on their application for PPP loan forgiveness.

Key details

Businesses that have applied for or received a PPP loan are no longer precluded from participating in the Employee Retention Tax Credit.
To claim this tax credit for quarters prior to Q4 2021, you must meet at least 1 of the 2 eligibility criteria, listed below.
Starting July 1, 2021, small startups can qualify as Recovery Startup Businesses even if they do not meet normal qualification rules and beginning October 1, 2021, only Recovery Startup Businesses are eligible.
Starting July 1, 2021, ERTC must be taken against Medicare taxes instead of Social Security.

Who is eligible in 2021?

Your company must meet at least one of the following criteria to participate in 2021 for Q1-Q3:

You fully or partially suspend operation due to government orders limiting commerce, travel, or group meetings as a result of COVID-19.
You experience at least a 20% decline in gross receipts during the calendar quarter compared to the same quarter in 2019 (or 2020 if your company did not exist at the start of such quarter in 2019). If gross receipts later increase, eligibility ends in the first quarter that gross receipts are greater than 80% compared to the same quarter in 2019.
If you do not qualify based on the previous reasons, you could still qualify as a Recovery Start-up Business if you (i) began business after February 15, 2020 and (ii) have annual gross receipts not exceeding $1 million. This will apply to wages July 1, 2021 and onward.

For the suspension of operations qualification, your company will only be eligible for the period of time that your operations are actually suspended due to government order. If government restrictions are lifted such that your company no longer qualifies, please contact Justworks immediately to stop claiming the credit.

For the decline in gross receipts qualification, you can use either the current or previous calendar quarter to determine eligibility. We suggest looking to the previous quarter, since you will likely not yet have sufficient information on the current quarter to determine eligibility.

If you qualify as a Recovery Startup Business, the individual per employee cap (70% on $10,000 in qualified wages) applies with an additional restriction of a company $50,000 per quarter cap. As some Recovery Start-up Businesses may also be eligible under general ERTC qualifications, you may wish to speak to your accountant or tax advisor to maximize your potential credits.

Beginning October 1, 2021, only Recovery Startup Businesses are considered eligible.

Note: If your company has related entities, you may have to include those entities when you consider your company’s eligibility. For more information, see the FAQs section below.

For companies that averaged 500 or fewer full-time employees in 2019, this tax credit can be claimed for all your employees provided that your company meets the eligibility requirements. Again, if your company has related entities, you may have to include employees of related entities when counting employees under the IRS aggregation rules. Note that as of February 28, 2021, the IRS has not updated these FAQs in light of changes to the ERTC program.

For companies that averaged 501 or more full-time employees in 2020, this tax credit can only be claimed for wages paid to employees who are not performing services due to (i) the employer’s complete or partial closure by governmental authority due to COVID-19 or (ii) significant decline in gross receipts. These companies can only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship. Companies with 500 or more employees under the IRS aggregation rules should contact their Customer Success Manager about how Justworks can help -- you will not be able to claim the credit directly in Justworks.

Note: If you determine that your company is eligible for retroactive credits for past quarters, or you missed the deadline to enroll for Q3 in-app, September 30, 2021, you will need help in claiming ERTC via an amended 941 return. Please reach out to our Support team or your Customer Success Manager so that we can partner with you on the next steps. We are here to help.

Under the ARP, there is expanded eligibility for certain types of companies starting July 1, 2021:

Small startups (defined as businesses formed after February 15, 2020) can qualify as Recovery Start-up Businesses even if they do not meet the normal qualification rules regarding closure and/or decline in gross receipts, subject to certain caps and other restrictions.
Severely distressed large employers (defined as having 500+ employees and a decline of over 90% in gross receipts) can qualify for the full scope of the tax credit, including credits for employees who continue to work, which are otherwise reserved for eligible companies with fewer than 500 employees.

How does it work?

You can claim this tax credit at any point in a quarter, for qualified past or future wages from that quarter. For example, if you start your tax credit in either Q4, retroactive tax credits can only be claimed from the beginning of that quarter.

Since eligibility may change from quarter to quarter, it’s your responsibility to reach out to Justworks to disable your tax credit if you become ineligible at any point in 2021. If you do not, you may be subject to tax penalties. Additionally, If you opted into the ERTC program in 2020, you will need to opt back in for 2021, if eligible. Justworks will not automatically opt you in based on your 2020 opt-in status.

It’s also your responsibility to maintain records sufficient to substantiate eligibility for the Employee Retention Tax Credit, such as documentation sufficient to demonstrate that your company’s gross receipts declined by the requisite amounts.

Companies with 500 or fewer full-time employees

For companies that averaged 500 or fewer full-time employees in 2019, this credit will apply for ALL employees provided that your company meets the eligibility requirements.

When you get started, we’ll ask you a few questions:

Have you received a PPP loan in 2021?
- Why are we asking this? You cannot claim ERTC credits on wages that you will also use on your application for loan forgiveness under the Paycheck Protection Program (PPP).
- If you have received a PPP loan in 2021, we’ll ask you some additional questions about the Covered Period of your PPP loan for your loan forgiveness application.
  - During the Covered Period that you enter, we will not apply ERTC credits.
  - By SBA rules, your Covered Period starts on either the date you receive your PPP funds or the first day of the next pay period following that date.
  - You should then enter an end date that is between 8 and 24 weeks from the start date that you enter, depending on your needs with respect to your loan forgiveness application.
  - If you’re not sure about your Covered Period, we recommend discussing with your tax advisor before completing ERTC enrollment.
  - You can also choose to opt in at a later point in the quarter or choose a longer Covered Period and inform us of any changes as soon as possible.
  - Keep in mind, however, that if your company is eligible for the retention credit for the current quarter, you need to opt in before the quarter ends for Justworks to claim it on your behalf.
  - If you did not receive a PPP loan in 2021, you may continue without entering additional information.
Have you requested the employee retention tax credit for wages in the current quarter outside of Justworks?
- You may have already claimed ERTC credits in 2021 on your own if you were processed payroll outside of Justworks earlier in the current quarter.
- If you’ve already claimed ERTC in the current quarter, we will need to know more information about this before enrolling you for ERTC on Justworks. This is to make sure caps are properly applied and you do not receive excess credits, which could result in penalties from the IRS.
Tell us the average size of your company in 2019
- If you (together with any related entities covered by the IRS’s aggregation rules) averaged above 500 employees in 2019, you will not be able to proceed at this time.
Tell us the reason you’re claiming the tax credit
- Suspended operations (Ended September 30, 2021)
- Decline in gross receipts (Ended September 30, 2021)
- Recovery Start-up Business
What time period do you want to apply for credits for?
- Claim tax credit for future wages only (today–December 31, 2021)
- Claim tax credit for all past and future wages starting from Q4 (Oct 1, 2021–Dec 31, 2021)

Q3 and Q4 will need to be enrolled in separately!

Finally, you will need to agree to each of the applicable terms and conditions by checking the adjacent box and then clicking “Claim Employee Tax Retention Credit.”

Companies with 501 or more full-time employees

For companies that averaged more than 500 full-time employees in 2019 (including the companies of applicable related entities under the IRS aggregation rules), reach out to your Customer Success Manager or support@justworks.com for more details.

How does this work with FFCRA?

If you have employees on FFCRA leave and also opt into the employee retention tax credit, Justworks will make sure you’re not being credited for the same wages to avoid tax penalties. If you added an employer contribution to FFCRA leave, that amount will be eligible for a tax credit. For more info, visit the IRS’ FAQs on the employee retention tax credit.

How does this work with related entities?

Under IRS guidance, certain related entities may be considered a single employer for retention tax credit eligibility questions, including whether an employer meets the economic conditions set forth above, has received a PPP loan or is under the applicable average employee thresholds. Visit the IRS FAQS for specific guidelines around aggregation rules and determining employer eligibility.

Disclaimer

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.