Capitalization of employee maintenance tax appropriations

The following article is provided by Whittlesey. It is posted here with permission.


Employee retention credit is one of the most important tax deductions available to businesses and nonprofits for years.

The ERC is a federal program (part of CARES law) designed to reward companies and organizations for retaining employees throughout the pandemic.

Employers affected by COVID-19 can receive up to $ 26,000 in tax refunds for each employee.

Unlike traditional tax credits, this repayable credit equals cash. Eligible employers can receive thousands and sometimes millions of dollars in refunds.

ERC can be a complex program and has evolved since credit was introduced. Below is a list of frequently asked questions and answers.

What is ERC?

The ERC is a repayable payroll tax credit. Congress made the ERC refundable so the IRS could send you a refund greater than the amount of payroll taxes you paid to the IRS.

When you combine the potential tax breaks of 2020 and 2021, the maximum refund could be $ 26,000 for each employee you had on your payroll.

There are generally two ways to qualify for the ERC.

Am I eligible for the ERC?

  • Employers must have experienced a complete or partial shutdown due to a government pandemic-related shutdown order (s)
  • There was a significant reduction in gross revenue of more than 20% for any quarter of 2021 compared to 2019, or a 50% reduction in any quarter in 2020 compared to 2019.

Many companies and non-profit organizations wrongly focus only on reducing gross revenue and do not pay enough attention to the rules of full or partial shutdown to determine suitability.

this is one or test, making many employers who have experienced full or partial layoffs due to government restrictions eligible for this credit.

I received a PPP Loan – Am I eligible?

Yes, Paycheck Lenders are eligible for the ERC.

However, wages forgiven by PPPs do not qualify for wages for this credit.

ERC credits are significant tax deductions and can often be greater than the amount of PPP loans.

Are non-profit and religious organizations eligible?

Yes, non-profit and religious organizations are eligible for this credit.

A wide range of employers in the industry can qualify for this credit, including: construction, education, financial institutions, government contractors, healthcare & medicine, hospitality, manufacturing, nonprofits, professional services, real estate, religious organizations, retail / wholesale and technology.

What time period does the ERC cover?

Most eligible employers can claim the ERC for special wages for most of 2020 and the first quarter of 2021.

How can I apply?

You must submit a modified 941X payroll tax form for eligible quarters.

I’m already filing my payroll taxes — Is it too late to claim this credit?

No, you can still submit a modified 941X form.

Whittlesey is currently working with many employers and has helped companies and nonprofits claim millions of dollars under this program.

Our simple three-step process will determine your suitability, analyze your situation to maximize your credit, and document and apply for credit.


About the Author: Brenden Healy is a tax partner of Whittlesey in Hartford. He advises companies and individuals and focuses his practice on non-profit organizations, close companies, the manufacturing and distribution industry and the retail industry.

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