American Rescue Plan: Employee Retention Credit Extended

NOTE: The Infrastructure Investment and Jobs Act was signed by President Biden on November 15^th, 2021. The Act terminated the ERC credit for the 4^th quarter of 2021 unless the business is considered a Recovery Startup Business.

As the pandemic lingers, many businesses and industries are still affected, struggling to keep their doors open and employees paid. In an effort to curb the need for layoffs and provide a much-needed influx of cash, it is easier in 2021 to qualify for the employee retention credit and the potential credit amount is much larger. Eligible employers can receive a credit of up to $7,000 per employee per quarter if they have experienced a gross receipts decline of 20% or more as compared to the same quarter in 2019.

The qualification requirements discussed in this article, American Rescue Plan: Employee Retention Credit Extended, provide the highlights of the credit as it related to all of 2021 and also discusses the addition of a new way to qualify during the 3^rd and 4^th quarters of 2021 – if you are considered a Recovery Start Up Business. If you think your business may be eligible or you have any questions, please contact Kathleen Martin, CPA at (941) 365-4617 or your KB tax advisor. We encourage you to reach out as soon as possible so as not to delay the filing of your 2021 tax return because the information as it pertains to the credit must be included on the return.

American Rescue Plan: Employee Retention Credit Extended

The American Rescue Plan Act of 2021 modifies the employee retention credit first created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act then extended and expanded under the Consolidated Appropriations Act, 2021. This highly popular employment tax credit is designed to encourage businesses to keep workers on their payroll and support small businesses and nonprofits through the Coronavirus economic emergency.

Eligible employers may claim the credit against employment taxes equal to a percentage of qualified wages paid to employees beginning in 2020. The American Rescue Plan Act of 2021 modifies the rules for the employee retention credit for calendar quarters beginning after June 30, 2021 as follows:

Eligible Employers

An eligible employer is defined as:

1. An employer whose trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease (COVID-19);
2. An employer that experiences at minimum a 20% decline in gross receipts for the calendar quarter compared to the same quarter in 2019; or
3. A recovery startup business.

If the employer was not in existence at the beginning of the same calendar quarter in 2019, then the employer may use the same calendar quarter in 2020. Employers may also elect to determine if they meet the gross receipts test using the immediately preceding calendar quarter compared to the corresponding calendar quarter in 2019.

A “recovery startup business” means any employer that began carrying on any trade or business after February 15, 2020 with average annual gross receipts of $1,000,000 or less, and is otherwise not an eligible employer described in items 1 or 2 above.

Qualified Wages

Qualified wages are based on the business’s average number of full-time employees in 2019 (or 2020, if not in existence in 2019).

• Small employers, those that had 500 or fewer employees, may receive the credit for wages paid to employees whether or not they are providing services to the employer.

• Large employers, those that had more than 500 employees, may only receive the credit for wages paid to employees for time the employees are not providing services to the employer.

• Severely financially distressed employers, those that are experiencing a minimum 90% decline in gross receipts for the calendar quarter compared to the same quarter in 2019, may receive the credit for wages paid to employees during any calendar quarter.

Credit Amount

In general, the amount of the credit is 70% of qualified wages paid to an employee up to $10,000 per quarter. Recovery startup businesses may claim a maximum credit of no more than $50,000 per quarter. Qualified wages may include amounts paid to provide and maintain a group health plan that are excluded from employees’ gross income.

Employers must report their qualified wages on their federal employment tax returns, usually Form 941, Employer's Quarterly Federal Tax Return. They can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit.

Small employers, those that had 500 or fewer employees, may elect for any calendar quarter to receive an advance payment of the credit not to exceed 70% of the average quarterly wages paid by the employer in calendar year 2019.

No Double Benefit

There are limitations when considering an eligible employer's ability to claim the employee retention credit. A double tax benefit is not allowed. Other credits that impact the employee retention credit include, but are not limited to, the following:

• wages that are paid for with forgiven Payroll Protection Program (PPP) proceeds cannot qualify for the employee retention credit;

• qualifying wages for this credit cannot include wages for which the employer received a tax credit for paid sick and family leave; and

• employees are not counted for this credit if the employer is allowed a work opportunity tax credit.

Contact Us

Because of the enhancements and expansion of the employee retention credit, your business may now have an opportunity to take the advantage of this tax benefit. Please call your Kerkering Barberio team member at 941-365-4617 to discuss the employee retention credit and other business tax relief under the American Rescue Plan Act of 2021.