The Employee Retention Tax Credit (ERTC) was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 to provide relief to employers affected by the pandemic and encourage them to keep employees on staff. This refundable credit was expanded and extended by the Consolidated Appropriations Act of 2021, passed December 27, 2020, and the American Rescue Plan Act of 2021, passed March 11, 2021.
ERTC Eligibility Requirements
The ERTC is available to employers, including tax-exempt organizations, meeting one of the following conditions:
- The business was fully or partially closed during the calendar quarter due to a COVID-19 government order.
- The business’ gross receipts were less than 50% of the same calendar quarter in 2019.
What has changed since the CARES Act?
Four significant changes have taken place since the CARES Act passed last year, potentially increasing the amount of the ERTC for eligible employers, as well as expanding the number of employers eligible for the credit:
Extended the credit through December 31, 2021.
One of the most significant changes to the employee retention tax credits was extending the program through December 31, 2021. Initially, the credit was available only for wages paid through the end of 2020. The Consolidated Appropriations Act extended it through June 30, 2021, and the American Rescue Plan Act then extended the credit through the end of 2021.
Increased the amount of qualified wages for 2021.
Modifications were made to significantly increase the value of the ERTC by raising the amount of qualified 2021 wages per employee to 70%, an increase from 50% in 2020. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021, where it was limited to that same amount for the year in 2020. The maximum amount of qualified wages now available is $7,000 per employee per calendar quarter for a total of $28,000 in 2021.
Employers that received a PPP loan can claim the ERTC.
Employers that took advantage of the U.S Small Business Administration’s PPP loan can now claim the ERTC for 2021 and retroactively for 2020. However, the same wages cannot both count as an ERTC credit and be considered payroll costs for purposes of PPP forgiveness. This is sometimes explained as “no double-dipping.” If you did not claim the ERTC due to receiving a PPP loan, you might want to revisit your eligibility now.
Employers with 500 or fewer employees are eligible.
The CARES Act introduced the ERTC for employers with 100 or fewer full-time employees using 2019 data. Thanks to the Consolidated Appropriations Act, employers with up to 500 full-time employees in 2019 are now eligible for the credit for 2021.
Qualified employers can now claim this credit through Form 941 for quarters two through four this year or Form 941-X for amending quarter two 2020 through quarter one 2021. For more information, speak with your certified accounting professional or your payroll provider.
- IRS: Employee Retention Credit available for many businesses financially impacted by COVID-19 (March 31, 2020)
- New law extends COVID tax credit for employers who keep workers on payroll (January 26, 2021)
- IRS provides guidance for employers claiming the Employee Retention Credit for 2020, including eligibility rules for PPP borrowers (March 1, 2021)
- IRS provides guidance for employers claiming the Employee Retention Credit for the first two quarters of 2021 (April 2, 2021)
- U.S. Department of the Treasury Small Business Tax Credit Programs