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Changes to 2020 Employee Retention Credit Benefits Under the New Stimulus Bill

Posted by Chris LeRoux, CPA on Jan 21, 2021 3:13:55 PM

Employee Retention CreditRecently, President Trump signed the second COVID-19 stimulus bill, which includes some rather special benefits for small businesses (i.e., companies with 100 employees or less). The new bill allows for both retroactive and prospective changes to the Employee Retention Credit (ERC). It is now possible for businesses that received a Paycheck Protection Program (PPP) loan in 2020 to potentially also benefit from the ERC. You may recall, prior to these changes, a business could either get a PPP loan or take the ERC. They could not have both. In addition, the new bill extends the ERC period to cover the first two quarters of 2021. The extended period now covers wages from January 1, 2021 to June 30, 2021. The rules for the 2021 credit are significantly different and could provide opportunities for employers that did not previously qualify for the ERC.

As a business owner, it is important to:

1) Understand that wages used in the PPP loan forgiveness process are not available for ERC calculations

2) Identify whether you have had an “eligible quarter” for ERC purposes during 2020, and then

3) quantify the “qualified wages” so as to make a determination whether those wages are better utilized in claiming an ERC or forgiven as part of the PPP, or if you have enough total payroll costs to get the best of both worlds

At this time, it is still unclear how to calculate the retroactive ERC and the proper procedure for claiming the credit. Guidance from the Treasury Department is coming. We would encourage you to hold off on claiming the retroactive credit until we can get more clarity from the Treasury Department.

A Brief Summary of the 2020 Employer Retention Credit:

  • This is a refundable payroll tax credit
  • The credit is not limited to the number of employees, however, rules differ if you have more than 100 full-time employees
  • The credit is available to taxpayers who either:
    1) Had their business fully or partially suspended during at least one quarter in 2020, or
    2) Had a significant drop in gross receipts for quarters in 2020 relative to the same quarters in 2019
  • Compensation is capped at $10,000 for all quarters
  • The maximum credit is $5,000 per employee
  • To receive the credit, qualified wages must have been paid between March 12 and December 31, 2020

We will continue to provide updated guidance as it becomes available and we are happy to answer any questions you may have. Contact us below or call 425.629.1990.

Topics: Tax, COVID-19

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