While we all recognize the importance of staying aware of changes in major workforce programs, the 2024 changes to the Employee Retention Credit (ERC) program are especially significant. This guide will provide a comprehensive overview of these revisions, starting with an understanding of what the ERC program is, its history and importance, as well as fundamental transformations it underwent in the past. Later, we will delve deep into the details of the new modifications planned for 2024, their implications on various research teams, institutions, and the overall distribution of grants and competition circumstances. Lastly, we’ll address potential responses from the academic and research community.
The Employee Retention Credit (ERC) is a refundable tax credit that eligible employers can claim on their employment tax returns. It was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 to help businesses retain employees during COVID-19 shutdowns and economic downturns.
The ERC aims to encourage businesses to keep employees on payroll by providing a tax credit for a portion of wages and health plan expenses. Employers can get up to $5,000 back per employee in 2020 and up to $7,000 per employee per quarter in 2021. The credit can be claimed for wages paid after March 12, 2020 through December 31, 2021.
The ERC was first introduced in March 2020 as part of the CARES Act. It was initially available to employers who fully or partially suspended operations due to COVID-19 shutdown orders or experienced a significant revenue decline in 2020.
In December 2020, the Consolidated Appropriations Act extended and expanded the ERC for wages paid through July 1, 2021. It increased the credit rate and made more employers eligible by loosening some requirements.
The American Rescue Plan Act of 2021 further expanded the ERC through December 31, 2021. The credit rate increased to 70% of qualified wages per quarter in 2021. The gross receipts decline threshold was reduced to 20%.
The main purpose of the ERC is to incentivize employers to retain employees during economic downturns related to COVID-19. It provides businesses with funds to continue paying employees even if they are not operating at full capacity.
For small businesses, the ERC has been a lifeline during shutdowns and reduced revenue. It has allowed many companies to keep staff on payroll who may otherwise have been laid off. This preserves jobs and provides continuity for businesses trying to stay afloat.
The ERC also supports the broader economy by maintaining consumer spending power. When fewer workers lose their jobs, there is less disruption to spending and economic activity. The credit puts money in the hands of businesses to support ongoing operations and rehiring.
The ERC program has undergone several key changes since it was first enacted. Some notable adjustments include:
- Expanded eligibility from employers fully/partially suspended to those with only a decline in gross receipts.
- Increased credit rate from 50% of qualifying wages to 70%.
- Increased limit on per employee credit amount from $5,000 for the year to $7,000 per quarter.
- Allowed recovery startup businesses to use prior quarter gross receipts to determine eligibility.
- Reduced the required gross receipts decline from 50% to 20% compared to the same quarter in 2019.
- Extended the credit from June 30, 2021 to December 31, 2021.
- Allowed PPP borrowers who meet other requirements to claim the ERC.
These changes expanded eligibility and increased the value of the credit to support employers and job retention as the pandemic recovery period lengthened.
The Employee Retention Credit (ERC) program is set to undergo significant changes in 2024, with major modifications planned for candidature eligibility requirements. One of the most impactful changes is that all for-profit businesses will now be able to apply, regardless of experiencing a decline in gross receipts or a full/partial suspension of operations due to a government order. This expands eligibility to many more organizations.
Additionally, the 50% threshold for decline in gross receipts will be lowered to only 30% compared to the same quarter in the previous year. This means businesses that faced a smaller but still significant downturn can now qualify. The lookback period is also being extended from a single quarter to a full year to enable eligibility for those with longer-term revenue impacts.
Nonprofit organizations will newly qualify for ERC funding if they operated at an operating loss for any quarter in the previous year, without requiring a specific gross receipts decline. This aims to support nonprofits facing financial struggles.
The maximum tax credit rate per employee is being raised from $7,000 per quarter to $10,000 per quarter for 2024 onwards. This will enable larger credits for businesses that retained more staff through challenges. Credits can be claimed on qualified wages up to $10,000 per employee per quarter.
For recovery startup businesses (begun after February 15, 2020), the limit rises from $50,000 per quarter to $75,000 per quarter. This aims to provide enhanced support to new organizations launched during the pandemic.
The 30-day wage limit is being removed, allowing credits to be claimed on wages paid throughout the entire quarter. Previously, only wages paid in a 30-day period qualified.
Significant reforms are being introduced in the ERC evaluation process from 2024 onwards. A key change is switching from retrospective to real-time approval, where eligibility is pre-confirmed before wages are paid out. This enables proactive planning.
Automated pre-screening will be introduced to instantly approve candidates clearly meeting all eligibility criteria. Others will undergo manual review with a guaranteed decision timeline of 5 business days. Applicants will have a single dedicated case manager for follow-ups, vs dealing with random reviewers previously. There will also be an ombudsman for dispute resolution.
The 2024 ERC program changes aim to expand eligibility, increase funding, streamline approvals and enhance support services. Experts advise interested employers to proactively evaluate their eligibility and plan wages based on the new guidelines well in advance of 2024.