Two Taxpayer-Friendly Changes to the Employee Retention Credit
Signed Into Law December 27, 2020
The Consolidated Appropriations Act (CAA) signed into law on December 27, 2020 introduced changes in the eligibility for and the calculation of the Employee Retention Credit (ERC) for 2020 and 2021. In addition, the CAA extended the application of the credit to July 1, 2021 from the original December 31, 2020 deadline.
The ERC is a fully refundable payroll tax credit for eligible employees.
Prior to the CAA, the ERC was only available to businesses that did not receive a Paycheck Protection Program (PPP) loan. The CAA retroactively changes prior law and now deems businesses that borrowed a PPP loan in 2020 to also be eligible to claim an ERC. The biggest caveat is that a business may not use the same payroll expenses to qualify for both forgiveness of a PPP loan and as qualifying wages for an ERC.
Complete guidance has not been issued on how to claim the Employee Retention Credit for retroactively qualified wages, however guidance is expected to be issued soon and to follow the deadline for payroll forms. Consequently, the deadline for taking the credit for the quarter ended December 31, 2020 is February 1, 2021.
The CAA also made changes to the deadline and threshold for claiming the ERC in 2021. The CAA extended the time for businesses which qualify for the ERC to claim the ERC for the first two quarters of 2021. Furthermore, it decreased the threshold for claiming the credit from 50% to 20%.
If you have a for-profit business or tax-exempt organization that carried on a trade or business during the calendar year 2020 and/or the first two quarters of 2021 and either:
- Fully or partially suspended operations during any calendar quarter in 2020 or either of the first two quarters of 2021 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19
OR
- Had a 50% (for 2020) or 20% (for 2021) drop in gross receipts in any quarter of 2020/first two quarters of 2021 from what they were in the same quarter in 2019/2020 then you may be eligible for the credit.
Ready to see if you qualify? We will be happy to complete an analysis of your specific circumstances and assist in determining your best approach to claiming an ERC, with or without the consideration of PPP loan forgiveness. Contact us for details.
