ALERT: Employee retention credit extended and expanded

Significant enhancements to and expansion of the employee retention credit was included in The Consolidated Appropriations Act, 2021, that was signed into law on December 27, 2020.

The employee retention tax credit was originally enacted under the CARES Act in March 2020. To be eligible, businesses either had to (1) have their business fully or partially suspended during at least one quarter in 2020 or (2) have a significant decrease in gross receipts for quarters in 2020 relative to the same quarters in 2019.

Key points

• The required threshold in gross receipts is a 20% decrease for quarters in 2021 compared to quarters in 2019. In 2020, this threshold was 50%.
• The maximum credit has been expanded and is now $7,000 per employee per quarter for the first two quarters of 2021 (e.g., a maximum of $14,000 per employee). In 2020, the maximum was $5,000 per employee for the year.
• Businesses with less than 500 employees (including affiliates) are now eligible for the credit even if employees are working. Previously, no credit was available for wages paid to employees working for companies with more than 100 employees.
• Businesses that received a loan under the Paycheck Protection Program (PPP) were not eligible for the credit under the original legislation. The new law removed this stipulation and now states that wages covered by forgiven PPP loan proceeds are not eligible for the credit. However, wages not covered by forgiven PPP loan proceeds may be considered for the credit. This provision is retroactive to March 13, 2020. Credits for previous quarters will be claimed on Form 941, however we are waiting on guidance for specific instructions.

The following chart provides highlights of the changes:

	2020	2021
Period of credit availability	For qualified wages paid after March 12, 2020, and before January 1, 2021	For qualified wages paid after December 31, 2020, and before July 1, 2021
Amount of credit	50% of qualified wages plus cost of providing health benefits	70% of qualified wages plus cost of providing health benefits
Maximum credit amount	$5,000 per employee for the year (50% x $10,000 qualified wages)	$7,000 per employee for each of the first two quarters (total of $14,000 per employee) (70% x $10,000 qualified wages); this credit is available even if credit was already received for 2020
Eligibility: 100 employees or less	Business operations that are either fully or partially suspended by a COVID-19 lockdown order or for any 2020 quarter in which gross receipts are < 50% of gross receipts for the same quarter in 2019	Business operations that are either fully or partially suspended by a COVID-19 lockdown order or for any 2021 quarter in which gross receipts are < 80% of gross receipts for the same quarter in 2019
Eligibility: Greater than 100 employees	Not available unless wages were paid even though no services were performed	Threshold increased to 500 employees
Eligibility: Greater than 500 employees	Not available unless wages were paid even though no services were performed	Not available unless wages were paid even though no services were performed
PPP loan impact on eligibility	ORIGINAL LAW: Companies receiving a PPP loan are not eligible for this credit. NEW LAW: No prohibition; however, a credit may not be claimed for wages paid with PPP loan proceeds that have or are expected to be forgiven. This change is retroactive!	No prohibition; however, a credit may not be claimed for wages paid with PPP loan proceeds that have or are expected to be forgiven.
Advance payments	No provision to monetize the credit before qualified wages are paid	Guidance pending: Advance payment for companies with 500 or fewer employees, based on 70% of average quarterly payroll for the same quarter in 2019
Governmental entities	Not available for any federal, state or local governmental entity	Exception allowed for state or local run colleges, universities, organizations providing medical or hospital care and certain organizations chartered by Congress
Limitation on increase in pay rate	No credit allowed for pay rate increases	Provision repealed

We are here to assist you

We remain available to assist you in any way we can as you review and process this information. Contact your AGH professional or Cindy McSwain using the information below.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.