The IRS urges employers to take advantage of the newly-extended employee retention credit, designed to make it easier for businesses that choose to keep employees on payroll despite challenges posed by COVID -19.
As a result of the new legislation, eligible employers can now claim a refundable tax credit against the employer share of social security tax equal to 70% of the qualified wages they pay to employees after Dec. 31, 2020 through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC available is $7000 per employee per calendar quarter for a total of $14,000 in 2021.
Eligible employers can access the ERC for the 1st and 2nd quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers (500 or less full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on form 7200, after reducing deposits in 2021.
Effective Jan. 1, 2021, employers are eligible if they operate a trade or business during Jan. 1 2021 through June 30, 2021 and experience either (1) a full or partial suspension of operations during this period due to governmental orders limiting commerce, travel, or group meetings due to COVID-19, or (2) a decline in gross receipts in a calendar quarter in 2021 where gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019. To be eligible based on a decline in gross receipts in 2020, the gross receipts were required to be less than 50%.
Employers that did not exist in 2019 may use the corresponding quarter in 2020 to measure the decline in gross receipts. In addition, for the first and second calendar quarters in 2021, employers may elect in a manner provided in future IRS guidelines to measure the decline in their gross receipts using the immediately preceding calendar quarter compared to the same calendar quarter in 2019.
In addition, effective Jan 1, 2021, the definition of qualified wages was changed to provide: 1 . For an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services. 2. For an employer that averaged more than 500 full-time employees in 2019, qualified wages are generally wages paid to employees that are not providing services because operations were fully or partially suspended or due to the decline in gross receipts.
Retroactive to March 27, 2020, the enactment of CARES Act, the law now allows employers who received PPP loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.
For more information, please contact Jack Leverone, Francine Taggart, or Bob Sauers.