ERTC 2021 – Employee Retention Tax Credit (Now Available With PPP Loan)
The new stimulus law made changes to the IRS Employee Retention Tax Credit for 2021. Now businesses can get the ERTC even if they got a PPP loan. This will allow businesses to get additional financial help during the Covid-19 pandemic.
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New Law Clarifies and Expands CARES Act Employee Retention Credit
The employee retention credit applies more broadly as a result of changes made by the Consolidated Appropriations Act, 2021.
Note this key retroactive change: employers who took PPP loans are now eligible to take the employee retention credit, so long as the same wages are not used for both.
Period of Credit Availability
Original Law: For qualified wages paid after March 12, 2020, and before Jan. 1, 2021.
New Law: For qualified wages paid after March 12, 2020, and before July 1, 2021, extending the availability of the credit to the first two quarters of 2021.
Amount of Credit
Original Law: 50% of the qualified wages paid to the employee, plus the cost to continue providing health benefits to the employee.
New Law: Effective Jan. 1, 2021, the credit amount is increased to 70% of qualified wages, which is amended to include the cost to continue providing health benefits.
Maximum Credit Amount
Original Law: 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).
New Law: Effective Jan. 1, 2021, the credit cap is increased to $7,000 for each of the first two quarters of 2021 ($10,000 in qualified wages X 70% tax credit rate), so that the maximum credit for 2021 will be $14,000. This aggregate $14,000 per employee maximum credit 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 Requirements for the Credit
Original Law: 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.
New Law: Effective Jan. 1, 2021, 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. Many additional businesses will be eligible for this credit due to the lowering of the bar on reduction in gross receipts (from a 50% reduction in gross receipts to a 20% reduction) compared to the same quarter in 2019, before the pandemic.
Credit Eligibility Whether an Employee is Working or Not
Original Law: For a company with more than 100 employees, no credit was available for wages paid to an employee performing services for the employer (either teleworking or working at the workplace, even though at reduced capacity due to reduction in business). Conversely, a company with 100 employees or less was eligible for the credit, even if the employee was working.
New Law: Effective Jan. 1, 2021, this threshold will be raised to 500 employees so that for the first two quarters of 2021, a company with 500 or fewer employees will be eligible for the credit, even if employees are working. Note that in calculating this 500-employee threshold, the employees of all affiliated companies sharing more the 50% common ownership are aggregated.
PPP Loan Eligibility
Original law: A company that received a Paycheck Protection Program (PPP) loan was not eligible for the employee retention credit. This disallowance rule extended to all affiliated companies that shared common ownership so that if one company received a PPP loan, any other company with more than 50% common ownership was ineligible to claim the credit.