Employee Retention Credit Changes
(revised February 2, 2021)
The Consolidated Appropriations Act finally signed by President Trump in late December made significant improvements to the Employee Retention Credit (ERC). The ERC itself was originally adopted in March 2020 as part of the CARES Act and is a refundable payroll tax credit for qualified businesses.
Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:
- the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19,
- or, a significant decline in gross receipts.
The December changes in the ERC extended the end date of the program, increased the number employees a business could get credit for, increased the per employee credit, decreased the COVID impact on the business required for the it to be eligible for a credit, and modified the rules regarding joint ERC and Payroll Protection Program (PPP) participation.
The chart below outlines the changes:
|End date||December 31, 2020||June 30, 2021|
|Maximum number of employees||100||500|
|Per employee benefit||50% of wages up to $10,000|
Or $5,000 max
|70% of wages up to $10,000 per quarter, or $14,000 max|
|Reduction in gross receipts threshold||50%||20%|
|Participation in ERC & PPP?||NO||YES – Note, however, that wages applied to PPP forgiveness DO NOT qualify|
The test to see if you qualify is if you can answer yes, to one of the following scenarios:
- You anticipate your Gross Revenue in 2021 to decrease 20% compared to 2019
- Your 4th quarter 2020 Gross Revenue is less than 80% of the gross receipts of 4th quarter 2019
If you answered yes to one of the conditions above, you might be eligible for this credit for the first two quarters in 2021.
You should not only determine if you are eligible for credit in 2021, but you should also determine if you are able to retroactively get a credit for 2020 even if you received a PPP loan. You may be able to secure 2020 credit if the government orders partially or fully suspended your business or your gross receipts decreased in any quarter in 2020 by 50% compared to 2019 and you did not claim those wages as part of the PPP forgiveness. If you qualify, you can amend your payroll taxes and get a refund up to a maximum amount per employee of $5,000.
Since this alert only highlights the major changes, please contact the RINA CARES team (RINACARESTeam@RINA.com) if you have any additional questions or would like us to analyze your situation to see if you qualify for the Employee Retention Credit. Another consideration to discuss with your RINA representative is the interplay with PPP Round Two.