Employee Retention Credit Update

Under the CARES Act, the employee retention credit (ERC) provided a refundable payroll tax credit for 50% of qualified wages up to $10,000 per employee for a maximum credit of $5,000 per employee. Eligibility for this credit was determined based on 1) a year-over-year gross receipts decline of 50% (calculated by quarter) OR 2) the business was subject to a full or partial suspension of operations due to a governmental order.

The Consolidated Appropriations Act, 2021 (CAA), signed in to law on December 27, 2020 expanded and extended the ERC in the following ways:

  • Retroactive to 2020, eligibility was expanded to include businesses that participated in the Paycheck Protection Program (PPP applicants were previously excluded). Businesses cannot claim the same wages for both programs.
  • The ERC provisions were extended from January 1, 2021 through June 30, 2021 and included the following enhancements:
    • Increased ERC rate from 50% to 70% of qualified wages
    • Reduced the year-over-year gross receipts decline threshold from 50% to 20%
    • Increased the qualified wages per employee from $10,000 for the year (2020) to $10,000 each quarter
    • Expanded the qualified wage base restrictions from 100-employees to 500-employees
    • Included additional provisions to allow new businesses to potentially qualify

Each client situation has unique circumstances that require consideration and the above outlines only the general concepts. If a company has previously or continues to pay wages during significant business downturn or while the business was under a government mandated shutdown (fully or partially), please contact us to discuss the company’s eligibility for the program.