Employee Retention Credit Changes and Extension to June 30, 2021

ERC Can Help Toward Paying Wages and Benefits

As discussed in our December 22 alert on the new Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), Congress has offered employers another shot at claiming a refundable Employee Retention Credit (ERC), with even better terms for 2021.  IRS guidance on the ERC for 2020 can be found here.  Updates are not yet available for the ERC changes under the new law but are expected this month.

Below we provide a table to compare the 2020 ERC (Paycheck Protection Program, or PPP, compatibility updates are retroactively available and shown in maroon) alongside the newly available ERC for 2021.  This is not a comprehensive analysis and you should consult with your tax counsel for assistance in properly claiming these credits.

Any ERC credits not yet taken for 2020 (especially given the retroactive PPP compatibility) can be made up on the 4th quarter Form 941 due by by the end of January.  The IRS and SBA are required to begin a public awareness campaign within January to inform employers of the ERC, particularly employers that last reported having 500 or fewer employees.

This tax credit can help employers pay employees for hours lost due to being fully or partially shut down or due to reduced business, or help them pay benefits for furloughed employees even if not receiving wages.  In 2021, employers with 500 or fewer employees can even claim the credit on all wages and benefits, not just those paid to make up lost hours.  While in 2020 employers in the public sector could not claim this credit, in 2021 the ERC is available to public colleges/universities and public entities primarily engaged in providing medical care.

	ERC for 3/13/20 – 12/31/20	ERC for 1/1/21 – 6/30/21
Employer qualifies for a quarter if:	Fully or partially shut down by government order limiting commerce, travel, or group meetings due to COVID-19 or Gross receipts significantly declined: from the first day of the first calendar quarter in 2020 that gross receipts are <50% of the same quarter in 2019, through the end of the calendar quarter in which gross receipts exceed 80% of the same quarter in 2019	Fully or partially shut down by government order limiting commerce, travel, or group meetings due to COVID-19 or Gross receipts significantly declined: for a calendar quarter in 2021 that gross receipts are <80% of the same quarter in 2019 (i.e., a loss of more than 20% instead of 50%) Alternatively, an employer can elect to claim the ERC for a quarter in which the prior quarter gross receipts are <80% of the corresponding quarter in 2019 An employer not in existence in 2019 can use the corresponding quarter in 2020 instead
Does taking a PPP loan disqualify employer from ERC?	Originally a PPP loan disqualified the employer from the ERC, but now the ERC is retroactively available so long as it’s not used on wages and benefits forgiven under a PPP loan (no double benefit)	No, so long as it’s not used on wages and benefits forgiven under a PPP loan (no double benefit)
Wages and benefits that can be claimed	50% of wages* and benefits paid to make up an employee’s lost hours due to suspended operations or decline in gross receipts (or 50% of benefits paid during a furlough that’s otherwise unpaid) An employer that averaged 100 or fewer full-time equivalent employees (FTEs) in 2019 could also claim it on 50% of wages and benefits paid to an employee for time spent working, too	70% of wages and benefits paid to make up an employee’s lost hours due to suspended operations or decline in gross receipts (or 70% of benefits paid during a furlough that’s otherwise unpaid) An employer that averaged 500 or fewer FTEs in 2019 could also claim it on 70% of wages and benefits paid to an employee for time spent working, too
Cap	$10K wages and benefits per employee for all 3 quarters combined (at 50% credit, that’s up to $5K total credit per employee for 3/13/20-12/31/20)	$10K wages and benefits per employee per quarter (at 70% credit, that’s up to $7K credit per employee 1st quarter 2021, and another $7K credit per employee 2nd quarter 2021)
Claiming the credit	Report via Form 941 and take credit against the employer’s share of Social Security tax. If the credit exceeds the employer’s share of Social Security tax, can also retain a corresponding amount of employment tax deposits after taking into account EPSL/EFML credits…this can include federal income tax withholding, employee’s share of FICA, and employer’s share of FICA. If the credit exceeds all of that, can also request an advance of the remaining ERC via Form 7200.	Report via Form 941 and take credit against the employer’s share of Social Security tax. If the credit exceeds the employer’s share of Social Security tax, can also retain a corresponding amount of employment tax deposits after taking into account EPSL/EFML credits…this can include federal income tax withholding, employee’s share of FICA, and employer’s share of FICA. (It is unclear whether this remains available for an employer with more than 500 employees as they can no longer receive an advance credit) If the credit exceeds all of that, an employer with 500 or fewer employees can also request an advance of the remaining ERC via Form 7200. (An employer with more than 500 employees cannot receive an advance credit via Form 7200)

*For 2020, employers with more than 100 FTEs in 2019 could not claim wages in excess of what the employee would have received during the 30 days preceding the shutdown or loss of receipts (i.e., increased wages and bonuses were ineligible to be recognized, being capped at previous wage rates for ERC purposes).  For 2021, this cap is removed.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.

This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.