On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law. Among many changes and updates to the prior relief legislation for COVID-19, this law clarifies and expands the employee retention credit that was created by the CARES Act.
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What Period of time does the Employee Retention Credit (ERC) apply to?
Qualified wages paid after March 12, 2020, and before July 1, 2021 (now available in the first two quarters of 2021).
Employee Retention Credit (ERC) eligibility requirements
Beginning January 1, 2021, the credit will be available to businesses with operations that are either fully or partially suspended by a COVID-19 governmental order and only during the period the order is in force; or
Gross receipts are less than 80% of gross receipts for the same quarter in 2019.
Businesses that were not in existence in 2019 may use a comparison to 2020 for purposes of the credit.
How much will the Employee Retention Credit (ERC) save you
Beginning January 1, 2021, the credit is 70% of qualified wages, plus the cost to continue providing health benefits to the employee.
Maximum Employee Retention Credit (ERC) credit amount
Beginning January 1, 2021, the cap is increased to $7,000 per employee for each of the first two quarters of 2021 ($10,000 in qualified wages x 70%) for a possible $14,000 credit per employee.
The 2021 credit is available even if the employer received the $5,000 maximum credit for wages paid to such employees in 2020.
Employer size limitations for the Employee Retention Credit (ERC)
Beginning January 1, 2021, the threshold increases to 500.
An employer with 500 or fewer employees will be eligible for the credit, even if employees are working.
When calculating the 500-employee threshold, the employees of all affiliated companies sharing more the 50% common ownership are aggregated.
How will the Employee Retention Credit (ERC) impact your PPP Loan
This change is retroactive to the effective date under the original law for wages paid after March 12, 2020.
A company that received or receives a PPP loan is no longer prohibited from claiming the employee retention tax credit.
The credit, however, may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven.
A company that received a PPP loan in 2020 and paid qualified wages in excess of the amount of the forgiven PPP loan used to pay wages, and is otherwise eligible to claim the credit, can claim the credit retroactively.
The IRS is expected to issue guidance on how to claim the credit retroactively.
Companies related to a PPP borrower that did not claim the credit because of the affiliation rules should be able to claim the credit retroactively if they are otherwise eligible for the credit.
How do I enroll in the Employee Retention Credit (ERC)
Getting started with the Employee Retention Credit (ERC) is easy and costs nothing. Simply contact your PayNortheast account manager and we activate the credit on your account.
Not a current PayNortheast payroll customer? Now is a perfect time to switch your payroll and HR service to PayNortheast. We would love to have you and know you will love us too.
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