New Law Gives Retroactive and New Opportunities for The Employee Retention Credit
The Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020 and included a $900 billion package for COVID-19 relief. In addition to economic stimulus for individuals and businesses, the enactment expanded on many provisions under the CARES Act.
The Employee Retention Credit (ERC)
Under the CARES Act, eligible employers could claim a refundable payroll tax credit for up to $5,000 per employee for qualified wages paid after March 12, 2020 through December 31, 2020. This credit was only available if an employer did not receive a PPP Loan.
The Consolidated Appropriations Act, 2021 removed this prohibition, essentially making the credit available retroactively to all qualified employers beginning on March 13, 2020. In other words, the amendment to the CARES Act allows taxpayers to claim both the ERC and borrow a PPP loan, just not on the same wages or health care costs. Many PPP borrowers may be able to qualify for full forgiveness of their PPP loan using only payroll costs. However, with this amendment, using non-payroll costs for forgiveness (subject to the 60-40 requirement) may provide access to the ERC. Additionally, the new COVID-19 Relief Package expanded and enhanced the Employee Retention Credit for 2021. A few highlights from the amended provisions are included below:
| CARES ACT 2020 | CONSOLIDATED APPROPRIATIONS ACT | |
|---|---|---|
| Time Period Credit is Available | March 13, 2020 – December 31, 2020 | January 1, 2021 – June 30, 2021 |
| Qualified Employer | Reduction of quarterly gross receipts by at least 50% of the same quarter in 2019 OR | Reduction of quarterly gross receipts (or immediately preceding calendar quarterly gross receipts) by at least 20% of the same quarter in 2019 OR |
| Qualified Employer | Required to fully or partially suspend operations during any calendar quarter in 2020 | Required to fully or partially suspend operations during any calendar quarter in 2021 |
| Qualified Wages | 100 or fewer employees – all wages eligible during quarter | 500 or fewer employees – all wages eligible during quarter |
| Qualified Wages | More than 100 employees – wages paid to employees NOT to work | More than 500 employees – wages paid to employees NOT to work |
| Maximum Qualified Wages | $10,000 per employee per year | $10,000 per employee per quarter |
| Payroll Tax Credit Rate | 50% of qualified wages | 70% of qualified wages |
| Maximum Credit Amount | $5,000 per employee per year | $7,000 per employee per quarter |
The IRS is expected to issue additional guidance on how to claim the credit retroactively for 2020 and for the advanced payments for new provisions in 2021. Talk with your advisor if you have any questions or to find out if your company may qualify for the Employee Retention Credit retroactively and/or in 2021.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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