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Tax & Assurance Guidance

Employee Retention Tax Credit Updated and Extended by Most Recent Stimulus Package

Posted on December 30, 2020 by

Sarah Russell

Sarah Russell

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The most recent COVID-19 Stimulus Package extended and made some key adjustments to the Employee Retention Credit (ERC) making it likely more businesses will qualify for the credit.  Below are some key changes:

  • Extended the credit availability through December 31, 2021.
  • This legislation now allows a company that received a Paycheck Protection Program loan to also claim the ERC, however, wages paid for with PPP funds that have been forgiven are not qualified wages for purposes of the credit. Companies that previously have not applied for the credit may be able to amend previously filed payroll tax returns.
  • Effective Jan 1, 2021, the credit amount is increased to 70% of qualified wages. Wages are capped at $10,000 per employee per quarter, so the maximum credit for 2021 will be $14,000 per employee.  In 2020 the credit was capped at $5,000 total per employee.
  • Effective Jan 1, 2021 businesses are eligible to claim the credit if gross receipts are less than 80% of gross receipts for the same quarter in 2019.  This is reduced from the 50% reduction requirement for 2020.
  • Effective Jan. 1, 2021 companies with 500 or fewer employees may claim the credit even if employees are working. Prior to the updated legislation, this threshold was 100 employees.  It should be noted affiliated companies must be aggregated when calculating this 500 employee threshold.
  • The legislation provides for an advance payment of the credit for companies with 500 or fewer employees, based on 70% of average quarterly payroll for the same quarter in 2019 so that the credit may be monetized before the wages are paid. Further guidance is expected on this piece of the legislation.

Based on these changes, it is expected more companies will qualify for the credit than under the previous rules.  If you need help determining whether your business qualifies, contact us.

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Sarah Russell

Shareholder, Tax

As the leader of the firm's tax group, Sarah supports growth-driven domestic and international businesses with tax planning, consulting and compliance.

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