Employee Retention Credit Update

To encourage businesses to maintain their workforces, the CARES Act created the Employee Retention Credit (ERC). The Consolidated Appropriations Act, 2021, signed into effect on December 27, 2020, clarifies and extends the Employee Tax Credit to payroll costs through 2021.

To be eligible for the credit, employers must have 500 or fewer employees and must have been in business during the calendar year 2020 and had operations fully or partially suspended due to a COVID-19-related governmental shutdown order or experienced a decline in gross receipts of less than 80% of gross receipts for the same quarter in 2019. Businesses that did not exist in 2019 may use a comparison to 2020 for purposes of the credit.

Below is a summary of eligibility updates effective January 1, 2021:

• The time period for qualified wages is extended through July 1, 2021.
• The credit increased to 70% of qualified wages plus the cost of continuing to provide health benefits.
• The maximum credit is $7,000 per employee for each of the two quarters for a total of $14,000.
• Employers that received a PPP loan in 2020 are eligible for credits for wages not paid with forgiven PPP funds and can claim the credit retroactively.
• The credit is allowed for hazard pay increases.
• Public universities and colleges, organizations whose principal role is providing medical or hospital care, and federal credit unions are eligible for the credit.
• Clarification of gross receipts for tax-exempt entities.

We are anticipating additional guidance. Contact your Whittlesey advisor for assistance.