The government has recently announced an extension of the employee retention credit (ERC) as part of the American Rescue Plan Act. This extension provides significant relief for employers who have been struggling to retain their workforce during the ongoing COVID-19 pandemic.
The ERC was originally introduced in the CARES Act to incentivize businesses to keep employees on their payroll instead of laying them off. The credit is available to employers who have experienced a significant decline in gross receipts or have been subject to a full or partial suspension of operations due to government orders related to COVID-19.
The extension of the ERC allows employers to claim a tax credit of up to $7,000 per employee per quarter for wages paid between July 1, 2021, and December 31, 2021. This extension also includes changes to the eligibility criteria, making it easier for more employers to qualify for the credit.
Employers should be aware of the following key points regarding the extended ERC:
1. Eligibility Criteria: The extension of the ERC has expanded the eligibility criteria for employers who can claim the credit. Previously, employers were ineligible if they received a Paycheck Protection Program (PPP) loan. However, the extension now allows employers to claim the ERC even if they have received a PPP loan.
2. Maximum credit Amount: The maximum credit amount has been increased to $28,000 per employee for the second half of 2021. This means that employers can claim a credit of up to $7,000 per employee per quarter for the remainder of the year.
3. Qualified Wages: Employers can claim the ERC for qualified wages paid to employees, including healthcare costs, for the period from July 1, 2021, to December 31, 2021.
4. Recovery Startup Businesses: The extension also creates a special category of employers known as “recovery startup businesses” which allows them to claim the credit even if they have no qualifying wages.
5. Filing Process: Employers will need to file Form 941 to claim the ERC for each quarter to receive the credit. It is important for employers to accurately calculate and report their qualified wages to maximize their credit amount.
In light of the extended ERC, employers should work closely with their tax advisors and financial professionals to ensure they are taking full advantage of the credit. Employers should also consider reviewing their payroll records and financials to identify opportunities to maximize the credit and address any potential compliance issues.
Overall, the extension of the ERC provides much-needed relief for employers who have been struggling to retain their workforce during the ongoing pandemic. By staying informed about the eligibility criteria and filing process, employers can take full advantage of the credit to support their business and employees during this challenging time.