In December 2020 the Consolidated Appropriations Act, and in March 2021 the American Rescue Plan Act were signed by the President providing additional COVID-19 relief packages for businesses. Specifically, this new legislation amends, expands, and enhances the CARES Act Employee Retention Credit (ERC). The legislation is broken down into two segments:
Here is an overview of the credit for 2020:
The Federal government passed the CARES (Coronavirus Aid, Relief and Economic Security) Act on March 27, 2020.
Any private sector or non-profit employer, regardless of its size, is eligible for the Employee Retention Credit during calendar year 2020.
To be eligible, the business must:
- Be fully or partially suspended due to government order due to COVID-19, or
- incur a 50% decline in gross receipts from the same quarter in 2019, between 3/13/20 through 12/31/20.
The Employee Retention Credit is equal to 50% of qualified wages paid per employee. Currently, the Act places a $5,000 total cap on the credit per employee for the 2020 tax year.
“Qualified wages” varies depending on the number of employees. The credit is available for qualified wages from 3/13/20 through 12/31/20.
Here is an overview of the credit for 2021:
In December 2020 the Consolidated Appropriations Act, and in March 2021 the American Rescue Plan Act were signed providing additional COVID-19 relief packages for businesses. Specifically, this new legislation amends, expands, and enhances the CARES Act Employee Retention Credit (ERC).
The ERC was previously unavailable as an option for relief to businesses that received Paycheck Protection Program (PPP) loans through the SBA. However, the new legislation explicitly provides a retroactive amendment to March 13,2020, and clarifies these businesses are now eligible to receive the ERC—just not on wages paid with PPP loan funds.
Other important changes to the ERC include:
- Businesses that received PPP loans now eligible to receive ERC
- Extension of ERC for the entire calendar year 2021
- A prospective credit increase from 50% of up to $10,000 of qualified wages annually to 70% $10,000 of qualified wages per quarter starting January 1, 2021 through December 31,
- 2021; and
- Increases limit on per-employee creditable wages from $10K for the year to $10K for each quarter in ‘21
- New max = $33,000 ($5K / 2020 + $7K / 1Q21 + $7K / 2Q21 + $7K / 3Q21 + $7K / 4Q21)
- Increased benefits in 2021 for full wages for companies up to 500 employees
- Public universities and hospitals are now considered eligible employers.
The Employee Retention Credit can be claimed against the employer’s portion of employment taxes, including Social Security and Railroad Retirement. Should the credit exceed the amount due, it is treated as an over payment and is refundable.