Changes to the Employee Retention Tax Credit
with the Consolidated Appropriations Act of 2021
|
|
During hard times like these, small businesses look towards their banker for advice. The COVID-19 stimulus package signed into law on December 27th contains significant enhancements to the employee retention tax credit ("ERC") enacted under the CARES Act. The ERC is a refundable payroll tax credit that was only available to taxpayers who EITHER 1) had their business fully or partially suspended during at least one quarter in 2020, or 2) had a large drop in gross receipts for quarters in 2020 relative to the same quarters in 2019.
Below breaks down the changes from the original law to the enhanced Employee Retention Tax Credit.
|
|
|
|
|
Original Time Period
Qualified wages paid after March 12, 2020, and before January 1, 2021
|
|
New Time Period
Qualified wages paid after March 12, 2020, and before July 1, 2021
|
|
Amount of Credit
50% of the qualified wages paid to the employee, plus the cost to continue providing health benefits to the employee.
|
|
Amount of Credit
Effective Jan. 1, 2021, the credit amount is increased to 70% of qualified wages, plus the cost the continue providing health benefits.
|
|
Maximum Credit Amount
The credit was capped at $5,000 for all qualified wages paid during 2020 (the credit for $10,000 in qualified wages X 50% tax credit rate).
|
|
Maximum Credit Amount
Effective Jan. 1, 2021, the credit cap is increased to $7,000 for each of the first two quarters of 2021. This credit per employee for the first two quarters of 2021 is available even if the employer received the $5,000 maximum credit for wages paid to such employee in 2020.
|
|
Eligibility
Business operations that are either fully or partially suspended by a COVID-19 lockdown order;
Or, for any quarter in 2020, if gross receipts are less than 50% of gross receipts for the same quarter in 2019.
|
|
Eligibility
Business operations that are either fully or partially suspended by a COVID-19 lockdown order;
Or, for a quarter in 2021, if gross receipts are less than 80% of gross receipts for the same quarter in 2019.
|
|
Not available for companies not in existence in 2019. |
|
Employer Size for Whether Working/Not
A company with more than 100 employees could not take the credit for wages paid to an employee performing services for the employer.
A company with 100 or fewer employees was eligible for the credit, even if the employee was working.
|
|
Employer Size for Whether Working/Not
Beginning January 1, 2021, the threshold increases to 500. When calculating the 500-employee threshold, the employees of all affiliated companies sharing more the 50% common ownership are aggregated.
|
|
PPP Loan Eligibility
A company that received a PPP loan was not eligible for credit. This disallowance rule also extended to all affiliated companies that shared common ownership of more than 50%.
|
|
PPP Loan Eligibility
A company can borrow a PPP loan and claim an ERC for 2020. However, a credit may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven. This change is retroactive to the effective date under the original law for wages paid after March 12, 2020. As a result, a company that received a PPP loan in 2020 and paid qualified wages in excess of the amount of the forgiven PPP loan used to pay wages, and is otherwise eligible to claim the credit, should be able to file amended employment tax returns to claim the credit. Additionally, companies related to a PPP borrower that did not claim the credit because an affiliated company should also be able to file amended employment tax returns to claim the credit.
|
|
Advance Payment
No provision available to receive credit before a wage was paid.
|
|
Advance Payment
The IRS is expected to draft guidance to allow 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.
If the amount of the actual credit determined at the end of the quarter is less than the amount of the advance payment, the company will need to repay the excess.
|
|
Limit on Payrate Increase
Not applicable on pay rate increase.
|
|
Limit on Payrate Increase
New law allows credit for pay rate increases for hazardous pay.
|
|
Disallowance for Government Agencies
Credit was not available to any federal, state, or local governmental entity.
|
|
Disallowance for Government Agencies
Effective Jan. 1, 2021, an exception will allow the credit for state or local run colleges, universities, organizations providing medical or hospital care, and certain organizations chartered by Congress (which includes organizations such as Fannie Mae, FDIC, Federal Home Loan Banks and Federal Credit Unions).
|
|
About CFR
When applicants do not meet your institution's credit profile, consider referring them to Cash Flow Resources (CFR) for funding, while you keep their depository relationship.
Founded in late 2003, CFR is a private commercial factoring company serving local and regional businesses, primarily in the Gulf South. For more than 18 years, CFR has supported businesses in need of working capital and guidance, including existing, start-up, early stage and high growth businesses. Factoring or invoice buying allows fast, flexible working capital when a bank cannot do so. In addition to factoring, CFR provides consulting and accounting services to ensure clients make the best of their relationship with CFR.
CFR - Here for you when you need us.
|
|
|
|
|
|
|
|
|
|
