The Consolidated Appropriations Act, 2021 that was signed into law on December 27, 2020 includes several significant changes to the Employee Retention Tax Credit. 

 

The new law affects the credit for both 2020 and 2021. The most significant change is that taxpayers who previously received PPP funding that was forgiven (or is expected to be forgiven) can now also qualify for the Employee Retention Tax Credit.

 

Here are the key updates regarding the Employee Retention Tax Credit for 2020 for businesses who employed 100 or fewer employees in 2019, or paid employees who are not performing services in 2020:

 

• Businesses with operations that were fully or partially suspended during 2020 due to government orders related to COVID-19 may qualify for the credit

 

• Businesses with a 2020 quarterly decline of more than 50% in gross receipts when compared to the same quarter in 2019 may qualify for the credit

 

• The maximum credit is 50% of the first $10,000 in wages paid to an employee between March 12, 2020 and December 31, 2020

 

• Aggregation rules apply to the 100 employee limit

 

 

Here are the key updates regarding the Employee Retention Tax Credit for 2021 for businesses who employed 500 or fewer employees in 2019, or paid employees who are not performing services in 2021:

 

• Businesses with operations that were fully or partially suspended during 2021 due to government orders related to COVID-19 may qualify for the credit

 

• Businesses with a 2021 quarterly decline of more than 20% in gross receipts when compared to the same quarter in 2019 may qualify for the credit

 

• The maximum credit is 70% of the first $10,000 in wages paid to an employee during the first quarter of 2021 and another 70% of the first $10,000 in wages paid to an employee during the second quarter of 2021. This allows for a maximum credit of $14,000 per employee over the first two quarters of 2021.

 

• Aggregation rules apply to the 500 employee limit

 

The same wages that were used for PPP forgiveness or any other tax credit, such as the Work Opportunity Tax Credit, cannot be used for the Employee Retention Tax Credit. The new tax legislation also allows group health plan expenses to be considered qualified wages for the Employee Retention Tax Credit.

 

There are also new rules that allow businesses who were not in existence for all or part of 2019, or all or part of 2020, to be able to claim the Employee Retention Tax Credit.

 

The 2020 Employee Retention Tax Credit can be obtained by filing or amending the 4th quarter 941 tax return due January 31, 2020. The 2021 Employee Retention Tax Credit can be obtained by filing or amending the 1st quarter 941 tax return due April 30, 2021 and/or the 2nd quarter 941 tax return due July 31, 2021.

 

 

CLIENT RESOURCES:

 

We are providing two flowcharts that visually show the process of qualifying for the Employee Retention Tax Credit. One flowchart is for 2020 and the other is for 2021.

 

In addition, we are providing a questionnaire that can assist us in identifying if your company is a candidate for the Employer Retention Tax Credit.

 

Please complete the questionnaire and email it back to your advisor at Whalen & Company if you feel you may qualify for this tax credit. Your advisor can provide assistance navigating the new rules pertaining to the Employee Retention Tax Credit and help determine whether you qualify.