THE ENHANCED
EMPLOYEE RETENTION CREDIT Opportunities for employers
E By Jim Brandenburg, CPA, MST
nacted in December 2020, the Consolidated Appropriations Act 2021 (CAA) intends to provide COVID-19 relief to individuals, businesses, health care providers and more. The legislation offers nearly $1 trillion in relief. Coupled with the Coronavirus Aid, Relief and Economic Security (CARES) Act and other bills passed this year and last year, Congress ushered in nearly $5 trillion in stimulus and relief.
There were several provisions introduced in the CAA that were designed to assist struggling businesses. One of the more significant opportunities included an enhancement of the employee retention credit (ERC) under the CARES Act. The CAA made key changes to the credit, impacting both businesses and employers. This article addresses these changes and highlights how employers can realize new savings.
Background The ERC provides an incentive for employers impacted by the pandemic to retain their workforces. The focus of the ERC, as with the Paycheck Protection Program (PPP) loan, was to keep employees working. Designed differently than the PPP loans, the ERC offered payroll tax credits that could be realized immediately by employers when meeting various
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requirements (rather than through a government loan). While structured differently, the ERC and PPP loans shared a common goal of paying employees. The CARES legislation stipulated that an employer could not obtain a PPP loan and an ERC. However, a monumental change made by CAA now permits employers to claim the ERC even if they received a PPP loan — for both 2020 and 2021. Please note that while an employer can now obtain both a PPP loan and the ERC, they cannot claim the ERC on the same wages that were forgiven for PPP loan purposes. As a result, an employer might seek to specify nonpayroll costs (up to the 40% threshold) as part of their PPP loan forgiveness application. The ability of an employer to claim the ERC in 2020 or 2021 is causing many employers to evaluate the ERC in 2021, reevaluate 2020 and possibly amend their 2020/2021 payroll filings. The ERC presents the following key hurdles for employers to navigate:
Eligible employer An employer is entitled to the ERC if they have met one of two requirements: (1) They experienced a significant reduction in gross receipts (> 50% in 2020; but only > 20% in 2021) in a calendar quarter compared with 2019, OR (2) their business operations were fully or partially suspended by a government order imposing restrictions by curbing travel, commerce or group meetings because of the pandemic. The reduction in gross receipts test is mechanical and straightforward in its application. The CARES Act, however, did not clearly define provisions concerning the full or partial suspension of operations; but the
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