Tax Credits , Tax Planning
Expansion and Extension of Employee Retention Credit
The Consolidated Appropriations Act of 2021, passed by Congress in late December 2020, expands and extends the employee retention credit enacted to encourage businesses to keep employees on their payroll in response to the downturn created by the coronavirus disease. Eligibility for the employee retention credit was originally not available to companies that received PPP loans, but the CAA retroactively changed that so that wages not used for PPP loan forgiveness may now be used for the employee retention credit.
Included in the Expansion:
- Beginning in January 2021, the credit amount is increased from 50% to 70% of qualified wages.
- Qualified wage limits for employees increased from $10,000 amount paid per employee per year in 2020 to $10,000 paid per quarter through July 1, 2021.
- Eligibility period expanded through July 1, 2021 that originally was scheduled from March 12, 2020 through January 1, 2021.
- Note that wages are not limited to cash payments but include a portion of employer-provided costs for healthcare.
Qualifying Employers Include:
- An employer that fully or partially suspends business in a quarter because of a government order related to the COVID-19 virus.
- An employer whose gross receipts for 2020 to comparable quarter in 2019 are 50% lower.
- An employer whose gross receipts for 2021 to comparable quarter in 2019 are 20% lower.
Qualifying Wages Include:
- Small Employers: Businesses with fewer than 500 employees (up from 100) receive the credit for wages paid to employees regardless of if they worked or not.
- Large Employers: Business with more than 500 employees (up from 100) receive the credit for wages paid to employees who did not work.
How Employers Receive the Credit:
- Report qualifying wages on Form 941 when submitting Employer’s Quarterly Federal Tax Return.
- Reduce the required deposits of withheld payroll taxes from employees by the amount of the credit or request an advance of the employee retention credit by submitting Form 7200.
If you have any questions regarding this expansion and extension, please contact your Whitlock advisor.
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