As businesses continue to navigate the challenges brought on by the COVID-19 pandemic, the employee retention credit (ERC) has become a valuable resource for employers looking to retain their workforce. The ERC, which was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, has seen significant updates and expansions in 2021. These changes have made it an even more attractive option for businesses looking to offset the financial impact of the ongoing pandemic.
One of the most significant upgrades to the ERC in 2021 is the expansion of eligibility criteria. Under the previous guidelines, businesses that received a Paycheck Protection Program (PPP) loan were not eligible to claim the ERC. However, the Consolidated Appropriations Act, which was signed into law in December 2020, reversed this restriction. This means that businesses that received PPP loans in 2020 are now eligible to also claim the ERC, providing them with additional financial relief.
Additionally, the American Rescue Plan Act, which was signed into law in March 2021, brought further enhancements to the ERC. The Act extended the availability of the credit through the end of 2021 and increased the credit rate from 50% to 70% of qualified wages. This means that eligible employers can now claim a credit of up to 70% of qualified wages paid to employees, up to a maximum of $7,000 per employee per quarter.
Furthermore, the Act also expanded the eligible employee threshold, allowing businesses with up to 500 employees to claim the credit for wages paid to all employees, regardless of whether they were working or not. This expansion is particularly beneficial for businesses in industries that have been heavily impacted by the pandemic, such as hospitality and leisure.
Another notable upgrade to the ERC in 2021 is the introduction of the “severely financially distressed employer” provision. This provision allows businesses that experienced a significant decline in gross receipts to claim the credit for all wages paid to employees, regardless of the size of their workforce. This provides a lifeline to businesses that have been hit hardest by the economic downturn and allows them to recoup a larger portion of their payroll expenses.
In order to streamline the process of claiming the ERC, the Internal Revenue Service (IRS) has also made improvements to the credit‘s administration. The IRS has provided guidance and resources to help employers navigate the complexities of the ERC, including detailed FAQs and a dedicated page on their website specifically for the ERC. Additionally, the IRS has simplified the process of retroactive claims for employers who may have missed out on the credit in 2020.
In conclusion, the upgrades to the employee retention credit in 2021 have made it an even more valuable tool for businesses looking to maintain their workforce during these challenging times. The expanded eligibility criteria, increased credit rates, and streamlined administration make the ERC a powerful resource for employers seeking financial relief. As businesses continue to adapt to the ever-changing landscape of the pandemic, the ERC stands as a testament to the government’s commitment to supporting employers and keeping Americans employed.