The recently enacted “Consolidated Appropriations Act, 2021” (“CAA”) [1] was the latest effort by Congress to provide stimulus and relief to individuals, businesses, health care providers, and more impacted by the COVID-19 pandemic. The legislation offers nearly $1 trillion in relief and was packaged with a larger government spending bill. The mammoth bill was signed into law on December 27, 2020, exactly nine months to the day after Congress passed the “Coronavirus Aid, Relief, and Economic Stimulus Act” (“CARES Act”), which totaled $2.3 trillion in relief.
There are a number of provisions in this new legislation designed to assist struggling businesses. One of the significant opportunities in the CAA is an enhancement of the “Employee Retention Credit” (“ERC”), which was introduced in the CARES Act. The CAA made several changes to the ERC – most of which are beneficial for businesses and employers. This article will address many of the changes in the ERC and highlight how employers can realize these savings.
[1] While in Congress, the bill was referred to as the “Consolidated Appropriations Act, 2021” (“CAA”) but was signed into law as the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” or “Economic Aid Act” (PL 116-260).
The ERC was designed to provide an incentive for employers impacted by the pandemic to retain their workforces. As with the “Paycheck Protection Program” (“PPP”) loan, also part of CARES, the focus of the ERC was to keep employees working. The ERC, however, was designed differently than the PPP, and instead of providing funds through a government loan, it offered payroll tax credits that could be realized immediately by employers if they met various requirements.
The ERC presented a number of hurdles for employers to navigate. Several key ERC features included:
The CAA made several favorable changes in the ERC that may apply beginning in 2021 or retroactively back to the enactment of CARES in March 2020. In some cases, employers may be able to realize some ERC savings in 2020 as well as benefit during 2021. It is therefore essential for employers to determine if the CAA change impacting them applies only for 2021 or back into 2020.
Here are several of the CAA provisions that apply beginning in 2021:
Consideration for employers. These new CAA changes present sizable opportunities for employers to take advantage of the ERC. The higher 70% and increase in qualifying wages jumps the maximum credit per employee up to $14,000 and offers more benefits to employers. Further, the drop in gross receipts factor of 20%, down from 50% in CARES, permits more employers to be in a position to claim the ERC.
CAA changes that apply retroactively in 2020:
Consideration for Employers. Employers receiving a PPP loan can go back and review their loan forgiveness, while also seeking to revisit 2020 wages and possibly obtain an ERC by filing amended payroll forms for 2020.
The CAA enhancements to the ERC make this a tax incentive nearly every employer should evaluate. Please contact your Sikich advisor with any questions or for further details.
Other Resources: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
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