Understanding the employee retention credit: When Does It Expire?
The COVID-19 pandemic has created numerous challenges for businesses across the globe. Many organizations have been forced to make difficult decisions regarding their workforce, leading to mass layoffs and furloughs. In an effort to provide financial relief to struggling companies, the U.S. government introduced the employee retention credit (ERC) as part of the CARES Act in 2020. This credit was designed to incentivize businesses to retain and continue paying their employees during these unprecedented times. However, many employers are still unsure about the expiration date of this credit.
The employee retention credit was initially set to expire on December 31, 2020. However, as part of subsequent relief packages, the credit was extended through various amendments to the legislation. The Consolidated Appropriations Act, signed into law on December 27, 2020, extended the ERC until June 30, 2021. Just when businesses were getting a reprieve, the American Rescue Plan Act, signed into law on March 11, 2021, further extended the ERC until December 31, 2021, thus providing additional relief to businesses grappling with the ongoing economic consequences of the pandemic.
This extension has been welcomed by many employers who were able to retain and pay their employees during these challenging times. The employee retention credit provides a dollar-for-dollar credit against the employer’s share of Social Security taxes, up to a maximum credit of $7,000 per employee per quarter. This credit has been instrumental in helping businesses maintain their payroll and keep their workforce intact amidst economic uncertainty.
To qualify for the employee retention credit, employers must meet specific criteria. Businesses with less than 500 full-time employees can claim the credit if they experienced a significant decline in gross receipts. Initially, the drop in gross receipts needed to be at least 50% compared to the same quarter in the prior year. However, as of July 1, 2021, the threshold has been lowered to 20%. Alternatively, businesses can be eligible if they faced a full or partial suspension of operations due to government orders.
It’s important for employers to note that once a business exceeds 500 full-time employees, only wages paid to employees who were not providing services due to a government order or a significant decline in gross receipts are eligible for the credit.
Understanding the expiration date of the employee retention credit is critical for businesses to take advantage of this beneficial relief measure. Employers need to be aware that the credit is set to expire on December 31, 2021. This means that the opportunity to claim the credit will end, and businesses must plan accordingly to maximize its benefits.
As the year-end deadline approaches, businesses should ensure they have the necessary documentation in place to support their claim for the employee retention credit. Accurate records of payroll expenses, including employee salaries, healthcare costs, and retirement contributions, will be crucial in determining the credit‘s eligibility and amount.
In summary, the employee retention credit has been a valuable lifeline for businesses struggling to retain their workforce during the COVID-19 pandemic. With multiple extensions, the credit has provided much-needed financial relief to employers. However, it is paramount for businesses to understand that the ERC is set to expire on December 31, 2021, emphasizing the importance of planning and taking advantage of this credit before it’s too late.