Exploring the employee retention credit: Is it Still Accessible for Businesses?
The COVID-19 pandemic has brought economic challenges for businesses worldwide. Many companies have struggled to survive and keep their employees on the payroll amidst lockdowns, restrictions, and declining revenues. To support struggling businesses, the US government introduced various relief measures, including the employee retention credit (ERC). But as the situation evolves and economies start to recover, is this credit still accessible for businesses?
The employee retention credit was first introduced under the CARES Act in March 2020. Its goal was to encourage employers to retain employees by providing a refundable tax credit against employment taxes. Initially, the credit allowed eligible businesses to claim up to $5,000 per employee for qualifying wages paid between March 13, 2020, and December 31, 2020.
However, the Consolidated Appropriations Act (CAA) passed in December 2020 expanded and extended the program. Under the new guidelines, the credit became available through June 30, 2021, and the maximum amount that businesses can claim increased to $14,000 per employee.
So, is the employee retention credit still accessible for businesses?
The short answer is yes. The ERC is still accessible for businesses, but there are a few important updates and requirements to consider.
Firstly, businesses that received a Paycheck Protection Program (PPP) loan can now also claim the ERC. Previously, businesses had to choose between the PPP loan or the ERC, leading many to opt for the forgivable PPP loans. However, the CAA allowed businesses to apply for both, with some limitations. If a business received a PPP loan in 2020, they can claim the ERC for 2020 wages that were not used to support PPP loan forgiveness. However, wages used to claim the ERC cannot be included in the calculation of PPP loan forgiveness.
Secondly, the CAA introduced a significant change to eligibility requirements for the ERC. Originally, businesses had to demonstrate a significant decline in gross receipts to qualify for the credit. However, under the new guidelines, businesses are now eligible as long as they either experienced a decline of 20% or more in gross receipts in any quarter of 2021 compared to the same quarter in 2019 or they were affected by a full or partial suspension of operations due to government orders related to COVID-19.
Furthermore, the CAA made the ERC even more appealing for small businesses by increasing the employee threshold from 100 to 500. This means that businesses with fewer than 500 full-time employees can claim the ERC for wages paid to employees, regardless of whether they are working or not.
However, it is important to note that the IRS and the Treasury Department have recently issued guidance stating that businesses cannot claim the ERC for wages paid with forgiven PPP loans. This guidance has caused some confusion and led businesses to reconsider their eligibility for the credit. Therefore, it is crucial for businesses to consult with trusted tax advisors or professionals to fully understand the complexities and implications.
In conclusion, the employee retention credit is still accessible for businesses, providing much-needed financial relief during these challenging times. With expanded eligibility criteria and increased maximum claim amount, businesses have more opportunities to benefit from this credit. However, the recent guidance regarding the PPP loan forgiveness and the ERC has created uncertainty, and businesses should seek expert advice to ensure their eligibility and maximize their benefits from these relief programs.