These are challenging times for everyone, including the thousands of businesses affected by COVID-19.  We do have good news in the way of the recent expansion of the Employee Retention Credit (“ERC”), which provides significant aid in the form of a federal payroll tax credit.

Retroactive Employee Retention Credit Changes

The Consolidated Appropriations Act of 2021 brought a retroactive enhancement to the ERC. Under the new law, employers that received a PPP loan are now eligible.

The ERC is a 50% payroll tax credit for employers of 100 or fewer full-time employees for wages paid between March 12th and December 21st, 2020. Employers are eligible during this timeframe if either: (1) their business was shut down by the government; or (2) they experienced a 50% decline in receipts in a 2020 quarter compared to the same quarter in 2019. Once eligible, they continue being eligible for each quarter thereafter until their receipts are greater than 80%. Employers with greater than 100 full-time employees can still be partially eligible. 

Fully or partially shut down by government order means:

  • The orders have come from state or local governments having jurisdiction over the entity;
  • The order must limit commerce, travel, or group meetings due to Covid-19; or
  • The order must affect an employer’s trade or business.

A special note – if an employer has multiple locations and one geographic area meets this test, the whole company qualifies.

2021 Employee Retention Credit

In addition to the retroactive enhancement, the ERC was extended through June 30, 2021, with improved benefits. The 2021 credit is a 70% payroll tax credit and employers with 500 or fewer full-time employees are eligible if they experience a 20% decline in gross receipts from the comparable quarter to 2019. If an employer receives the maximum credit of $5,000 in 2020, they remain eligible to get the full $7,000 credit in the first two quarters of 2021 on the same employees.

Conclusion

The Employee Retention Credit is a great way for companies that paid their employees during the pandemic to increase their cash flow. While we are still in challenging times, the retroactive expansion of this credit, along with the helpful enhancements, will help some to brighten this dark winter.

For any questions about this credit, or how we can help you navigate these changes, please contact our team.

Jill Neuvirth