The employee retention credit (ERC) has been a key component of the United States government’s response to the economic impact of the COVID-19 pandemic. Designed to encourage businesses to retain their employees during the crisis, the ERC provides a significant financial benefit to eligible employers. In 2021, new criteria for the ERC have been introduced, expanding the eligibility and unlocking additional financial benefits for businesses.
The ERC was initially introduced as part of the CARES Act in March 2020 and was later expanded and extended through the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021. Under the new criteria, the ERC is now available to more businesses, and the potential financial benefits have been increased.
One of the key changes to the ERC in 2021 is the expansion of eligibility to businesses that received Paycheck Protection Program (PPP) loans. Initially, businesses that received PPP loans were not eligible for the ERC. However, under the new criteria, businesses can now retroactively claim the credit for wages that were not paid for with forgiven PPP funds. This means that businesses that previously thought they were excluded from the ERC may now be able to unlock substantial financial benefits.
Additionally, the ERC has been expanded to provide a higher maximum credit amount for each employee. In 2021, eligible employers can claim a credit of up to $7,000 per employee per calendar quarter, compared to the previous maximum of $5,000. This increase in the maximum credit amount means that businesses can potentially receive a greater financial benefit for each employee retained during the pandemic.
Furthermore, the ERC has been extended through the end of 2021, providing businesses with the opportunity to continue to benefit from the credit. This extension allows businesses to claim the credit for wages paid from January 1, 2021, through December 31, 2021, providing an additional opportunity to unlock financial benefits for retaining employees.
To claim the ERC, eligible employers must meet specific criteria related to the impact of the pandemic on their business and their operations. These criteria include experiencing either a full or partial suspension of operations due to a government order or a significant decline in gross receipts compared to a prior period. By meeting these criteria, businesses can unlock valuable financial benefits to help offset the impact of the pandemic on their operations and retain their employees.
Overall, the new criteria for the employee retention credit in 2021 have expanded the eligibility and financial benefits available to businesses, providing a valuable opportunity to unlock significant financial benefits for retaining employees during the COVID-19 pandemic. It is important for businesses to carefully review the criteria and consider their eligibility for the credit, as it can provide much-needed financial support during these challenging times.