Expansion of the Employee Retention Credit
Under the original CARES Act, Congress included an Employee Retention Credit (ERC) to assist employers hit hard by the coronavirus pandemic. The original ERC was made available to employers whose trade or business operations were fully or partially suspended due to COVID-19, or whose gross receipts for a calendar quarter in 2020 were less than 50% of gross receipts for the same calendar quarter of the previous year. The ERC was a credit against employment taxes for up to 50% of wages paid to employees after March 12, 2020, not to exceed $10,000 with respect to any employee for all calendar quarters.
The significant caveat to the original ERC as passed in the CARES Act was that any employer that received a Paycheck Protection Program (PPP) loan was not eligible for the credit.
Under the new stimulus plan, Congress has made some significant changes that will make seeking this credit more enticing to business owners, including those who have taken PPP loans.
Changes Under the New Act
Under the new stimulus passed at the end of December 2020, Congress has expanded the credit in the following significant ways:
- The credit rate is increased to 70% from 50%.
- Eligibility is expanded by reducing the requirement in a reduction in gross receipts from 50% to 20%.
- The limit of creditable wages is expanded to $10,000 per quarter instead of $10,000 per year.
- A change in the way wages are calculated now allows bonus pay and other wages to be included in consideration for the credit.
- Businesses formed in 2020 may now be eligible for the credit.
And finally, but perhaps most importantly for some businesses:
- Employers who receive or received a PPP loan may now qualify for the ERC with respect to wages that are not paid with forgiven PPP loan proceeds.
Make sure to consult with your tax specialist to see if you may now qualify for this expanded credit.