As businesses continue to navigate the challenges presented by the COVID-19 pandemic, the government has implemented various stimulus packages to provide relief and support. One of the key provisions included in these packages is the employee retention credit (ERC), which is designed to incentivize businesses to keep their employees on payroll.
The ERC was first introduced as part of the CARES Act in March 2020, providing eligible employers with a refundable tax credit equal to 50% of qualified wages (up to $10,000 per employee) paid between March 13, 2020, and December 31, 2020. To be eligible, businesses had to meet specific criteria, including experiencing a significant decline in gross receipts or being subject to a government-mandated shutdown.
Following the passage of the CARES Act, there were several updates and extensions to the ERC timeline. In December 2020, the Consolidated Appropriations Act (CAA) extended the ERC through June 30, 2021, increased the credit rate to 70% of qualified wages, and expanded the eligibility criteria for businesses.
The most recent development came with the passage of the American Rescue Plan Act (ARPA) in March 2021. The ARPA further extended the ERC through December 31, 2021, and made significant changes to the program. It increased the credit rate to 70% of qualified wages (up to $10,000 per employee per quarter), expanded eligibility to include new businesses, and allowed businesses to claim both the ERC and the Paycheck Protection Program (PPP) loan forgiveness.
The timeline of the employee retention credit has evolved significantly since its initial implementation, and businesses need to stay informed about the latest updates to take full advantage of the program. As we move into the second half of 2021, here are a few key considerations for businesses regarding the ERC:
1. Review eligibility criteria: The ERC has undergone several changes, including expanded eligibility and increased credit rates. Businesses should carefully review the criteria to determine if they qualify for the credit.
2. Maximize credit opportunities: With the extension of the ERC through December 31, 2021, businesses should explore ways to maximize the credit, including identifying qualified wages and calculating the credit amount accurately.
3. Coordinate with other relief programs: The ARPA allows businesses to claim both the ERC and PPP loan forgiveness, providing an opportunity to offset payroll costs and maximize financial relief.
4. Seek professional guidance: Given the complexity of the ERC and the frequent updates, businesses are encouraged to seek professional guidance from tax advisors, accountants, or legal counsel to ensure compliance and maximize the benefits of the credit.
Navigating the employee retention credit timeline can be challenging for businesses, especially with the frequent updates and changes to the program. However, staying informed about the latest developments and seeking professional guidance can help businesses leverage the ERC to support their employees and sustain their operations during this challenging time.