EmployeE Retention Credit Expands to Cover More Companies and Wages

Practice Areas

By Satya Yeruva and Ashleen Sahni

The recent Consolidated Appropriations Act, 2021 expanded the employee retention credit significantly. Many new companies may now be eligible for the credit, including those who have previously taken out a Paycheck Protection Program (PPP) loan.

The employee retention credit was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It allows employers to claim tax credit for wages paid during specified dates of the COVID-19 pandemic. We have provided a comparison of the previous regulations with the new rules below.

 

Previous Rules

(CARES Act)

New Rules

(Consolidated Appropriations Act, 2021)

When is the credit available?

On qualified wages paid between March 12, 2020 and January 1, 2021.

On qualified wages paid between March 12, 2020 and July 1, 2021.

Who is eligible?

Businesses that have:

  • Partial or full suspension of operations

Or,

  • 50% reduction in revenues compared to the same quarter in 2019.

 

From January 1, 2021, businesses that have:

  • Partial or full suspension of operations

Or,

  • 20% reduction in revenues compared to the same quarter in 2019.

Businesses that did not exist in 2019 may be eligible if they use a comparison to 2020 to claim the credit.

How is the credit amount calculated?

The credit was calculated at 50% of qualified wages paid to an employee, plus the cost of providing them health benefits.

Starting January 1, 2021, the credit is calculated at 70% of qualified wages paid to an employee, plus the cost of providing them health benefits.

What is the maximum credit amount per year?

$5,000 per employee

$7,000 per employee per quarter.

Can employers take credit for employees who are working?

Employers with more than 100 employees could not take credit for employees that are still working, even if their hours or contributions are reduced.

Companies with 100 or fewer employees could claim the credit for employees who were working.

Employers with 500 or fewer employees can claim the credit, even for employees who are working, starting January 1, 2021.

 

Can employers receive both a Paycheck Protection Program (PPP) loan and the employee retention tax credit?

Previously, companies who received a Paycheck Protection Program (PPP) loan could not receive an employee retention credit. The rule extended to all affiliated companies that shared more than 50% common ownership.

Now, companies can receive both a PPP loan and the employee retention credit. This applies retroactively for wages paid after March 12, 2020.

Companies cannot claim the employee retention credit for wages paid with forgiven PPP loan funds.

Businesses that did not previously qualify for the employee retention credit due to affiliation rules can also apply retroactively.

conclusion

For help claiming the employee retention credit or maximizing your 2020 tax savings, please contact your trusted Chugh CPAs, LLP professional.