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Employee Retention Credit

New Relief Law:  Employee Retention Credit 

As the health crisis rages on, our lawmakers have rolled out the 2021 Consolidated Appropriations Act in hopes of providing more aid and keep small businesses afloat as the country tries to further stabilize.  This new financial relief law provides new provisions to the Coronavirus Aid, Relief, and Economic Security (CARES) Act and now includes and extends the employee retention tax credit. In short, as the COVID-19 pandemic poses an ongoing national health threat, eligible employers now have until June 30, 2021 to claim the tax credit on wages paid to employees they have retained through the crisis.

In particular, this new legislation has a couple of important objectives. First, it retroactively spreads out the employee retention credit rules making them applicable back to the period of March 13 through December 31, 2020. Additionally, it allows that credit for the first half of 2021, i.e. January 1- June 30, 2021; however, bear in mind, eligibility varies slightly between 2020 and 2021.  The updated employee retention credit can provide your small business with anywhere between 50-70% of payroll tax credit, something that you definitely do not want to miss out on.  

Claiming the Employee Retention Credit 

As a provision of the CARES Act, lawmakers have implemented some more assistance to small businesses, and it falls under the Consolidated Appropriations Act, 2021. The employee retention credit (ERC) is now available through June 30, 2021 to eligible employers who retained employees during the COVID-19 pandemic in hopes to help businesses offset the financial disruption caused by the ongoing pandemic.

This new expansive law makes the tax credit available to even businesses that took a loan under the Paycheck Protection Program (PPP), including borrowers from the initial round of PPP who originally were ineligible to claim the tax credit. Specifically though, the credit can only be taken on wages that are not forgiven or expected to be forgiven under PPP. Thus, it is important to keep good records in this area.

Eligibility for the Employee Retention Credit

The purpose of the employee retention credit is to encourage employers to keep employees on the payroll, even if they are not working during the covered period due to the effects of the Coronavirus outbreak.  Here’s what you need to know as an employer to take advantage of this updated credit.

For 2020, eligibility in the ERC, small businesses (fewer than 100 full time employees) must prove that they either had suspended operations (fully or partially) due to a pandemic-related shut down order and/or show a 50% or greater decline in gross receipts in the same quarter of the prior year.  If your business had more than 100 full-time employees, there still may be some tax credit available, but more restrictions apply.

For 2021, eligibility in the ERC expanded to now include businesses with 500 or fewer full-time employees.  In addition, those businesses with greater than 500 full-time employees may be eligible but again with greater restrictions.  Moreover, businesses can also now qualify with a decline of gross receipts of only 20% (compared to 50% for 2020).

Note: if your business did not yet exist in 2019, you could still qualify for 2021 by using the same calendar quarter from 2020 as the comparison point.  Other factors to keep in mind are government and state entities and political subdivisions are not eligible for the ERC.  As well as, if you are self-employed, you are not eligible for the 2021 ERC for your own wages; however, if you employ other people, you may be eligible for the ERC wages paid to those employees.

Looking Forward

Ultimately, small businesses have many options and support now more than ever. To help you decipher whether you should take the ERC, a Paycheck Protection Program loan or if you qualify for both benefits is something that we at Dallo Law Group can help you analyze.  These are important initiatives that should definitely be on your radar and time is of the essence.  

Our experienced CPAs and tax attorneys are here to confidently help guide you through the extensive process and alert you to what you are eligible for so your small business can take advantage of some Coronavirus relief assistance.  As always, do not ever hesitate to reach out to us for an initial free consultation:  619-795-8000.