Important Changes to the Employee Retention Credit

On December 27, President Trump signed the second COVID-19 stimulus bill (the Consolidated Appropriations Act, “CAA”), that includes special benefits for small businesses, i.e., companies with 100 employees or fewer. The Employee Retention Credit (“ERC”) allows these small businesses that have previously received Payroll Protection Program (PPP) loan forgiveness to also obtain an ERC provided that the same wages are not used for both.

The credit is available to employers that either:

  • Fully or partially suspended operations during any calendar quarter in 2020 due to orders from a governmental authority related to COVID-19; or
  • Experienced a significant decline in gross receipts during any calendar quarter in 2020.

A significant decline is defined as a decrease in gross receipts beginning with the first calendar quarter in 2020 in which an employer’s gross receipts are less than 50 percent of its gross receipts for the same calendar quarter in 2019.

The credit consists of a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that eligible employers pay their employees.  The maximum amount of qualified wages considered with respect to each employee for all calendar quarters is $10,000; the maximum credit for an eligible employer for qualified wages paid to any employee is $5,000.

The above credit is for 2020 wages paid March 13, 2020 through December 31, 2020. Wages paid in the first six months of 2021 may be eligible for the credit but are subject to different rules.

The cash benefits of the ERC are material and immediate. Your loan forgiveness application may also be affected by the ERC. Please contact R&A for assistance in determining your specific situation.

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About this Author

Amy leads R&A's tax department. Her focus is individual and business tax compliance and consulting with an emphasis on working with clients through all stages of their business and life. Amy's clients span a variety of fields including manufacturing, medical practices, and hospitality. She also is accredited in business valuations and assists clients in valuations for business transition planning and estate and gift planning.