On December 21, 2020, the U.S. Senate and House of Representatives voted to approve the Consolidated Appropriations Act of 2021.

Sections 206 and 207, Title II of Division EE, Taxpayer Certainty and Disaster Tax Relief Act (TCDTR) of 2020 modify and extend the Employee Retention Credit (ERC) provided by the CARES Act.

Under the CARES Act, the ERC provides a refundable credit of payroll taxes of up to $5,000 per employee paid on qualified wages. Qualified wages are limited annually to $10,000 per employee. Eligible employers include businesses and tax-exempt entities whose operations have been completely or partially suspended as a result of government-ordered shutdowns related to the pandemic. Alternatively, the credit is also allowed to employers with a 50% decline in quarterly receipts as measured against the same period in 2019.

The TCDTR includes the following modification to the ERC retroactive to March 12, 2020:

  • Employers who received Paycheck Protection Program (PPP) loans are eligible for the ERC if they use wages that were not paid for with forgiven PPP proceeds. This is potentially a confusing area of the recent act and the IRS is expected to issue guidance regarding retroactive ERC claims for employers with PPP loans.

Beginning January 1, 2021 through June 30, 2021.

  • The ERC rate is increased from 50% to 70% of qualified wages.
  • Provides that the year-over-year gross receipts decline is lowered to 20% and establishes a safe harbor for eligibility based on prior quarter gross receipts. For example, an employer with 4th quarter 2020 revenue decline of 20% or more (versus the 4th quarter 2019) could claim the credit in the 1st quarter of 2021.
  • Increases employee wages includable in the credit determination from $10,000 per year to $10,000 per quarter.
  • For 2020, businesses with over 100 monthly average FTE’s could only claim the credit on wages paid to employees not to work. In 2021, that threshold has been increased to 500 average monthly FTE’s.
  • Allows businesses to claim an advance on the credit during the quarter based on wages paid in the same quarter in a previous year.
  • Provides rules that will allow employers who were not in business in 2019 to be able to claim the credit.

Disaster Relief

  • A tax credit of up to 40% of wages (up to $6,000 per employee) is available to employers in qualified disaster zones.

If you have any questions, please reach out to your personal Sciarabba Walker contact or email us at info@swcllp.com.