On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA, 2021) was signed into law. The CAA, 2021 Act greatly expanded the Employee Retention Credit (ERC). The credit is now available to more businesses and extends the date for wages paid through June 30, 2021.
Under the CARES Act, the ERC was available to qualified business for wages paid between March 12, 2020 and December 31, 2020. The ERC was equal to 50% of qualified wages paid to each employee, with a wage CAP of $10,000. The maximum credit per employee was $5,000. The ERC was not available to any business that received a Paycheck Protection Program (PPP) loan. The CAA, 2021 modified the eligibility for the ERC and now permits businesses that received a PPP to also qualify for the ERC. No Double Dipping is allowed. A business cannot claim an ERC on the same wages that were paid using PPP monies. As an example, if a business received PPP monies in April 2020 and spent the funds in accordance with the program requirements by June 30, 2020, they would be able to count the wages paid between July 1 through December 31, 2020, for the ERC.
The CAA, 2021 expands the maximum wages paid per individual from $10,000 in total to $10,000 per individual, per quarter, for wages paid between January 1, 2021 through June 30, 2021. The credit was further expanded from 50% to 70% of qualified wages. Under the CARES Act, the ERC was available to businesses with 500 employees or less, between March 12, 2020 and December 31, 2020. Under the CAA, 2021, the credit was reduced to businesses with 300 employees or less, between January 1, 2021 and June 30, 2021.
The ERC is available to private-sector businesses and tax-exempt organizations. The ERC is not available to Publicly owned companies. For a business to Qualify for the ERC, their operations had to have been either fully or partially suspended, as the result of a government (Federal State or Local) order that limits commerce, travel, or group meetings. The credit was also available to businesses that experienced a significant decline in the revenue. The revenue decline is measured on a quarter-by-quarter basis, as compared to the same quarter, from the previous year. A significant decline in revenue is more than a 50% reduction in gross receipts. Under the CAA, 2021, the decline in revenue test between January 1, 2021 through June 30, 2021 has been reduced from 50% to 20%.
Businesses with less than 100 employees can count all qualified wages paid. Businesses with over 100 employees and only include qualified wages paid to employees that do not work. As an example, employee Sam receives a salary of $1,000 per week for a 40-hour work week. As the result of a government order partially suspending operations, Sam works 24 hours during the week, however, the company pays Sam his full salary of $1,000. The company can claim an ERC for the 16 hours that Sam provides no services of $400 or 2/5th of his $1,000 salary.
Businesses that now qualify for the ERC during the 2nd, 3rd or 4th quarters of 2020, can amend their quarter payroll tax returns, to claim a refund for the eligible credit. Documentation must be kept supporting the basis used in calculating the credit.
Our professionals at BKC are well qualified to assist your business in determining if you qualify for the ERC. Please contact us at 908-782-7900 or info@bkc-cpa.com.
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