The CARES Act of 2020, the government’s response to aiding businesses of all sizes with pandemic relief helped include tax credits for employers. This section of the Act, called the employee retention credit (ERC), helped maintain retention of employees.
The American Rescue Plan and the Consolidated Appropriations Act extended the ERC until the end of 2021. Expansion included into an eligible employer and continued to increase the credit value for the new year.
Refundable tax credit, meaning that employers can receive a payment for their employees still on roll between March and December of 2020 could be claimed against Social Security. This pertains to the quarters equal to around 50% of qualified wages for employees, around $10,000 per employee in wages, and a total of $5,000 per employee.
Raising the credit to 70% of qualified wages from the CAA, and then up to around $10,000 per employee each quarter provided employers with nearly $28,000 per employee. This is an exponential jump from the damage the pandemic could have caused. Small employers, with 500 or fewer full-time employees, could receive an advance in payment for the ERC.
The poverty rate should have skyrocketed, but thanks to the CARES Act, the poverty rate hovered around 9.1%. This came from a near 12% height in 2019.
The extensions and other related factors relating to the ERC are discovered below:
COVID-19 Extension of the Tax Credit
Details of ERC changes are often difficult to track since the beginning of the pandemic. Some necessary details about this extension include the following:
The Extension Itself
Now extended through December 31, 2021, the ERC has gained another year of activity. The CAA also continued to remain effective until June of 2021, when the American Rescue Plan decided to further it until the end of the 2021 fiscal year.
Definition of the Employer
The Employee Retention Credit expanded to not just large companies, but those with 500 or fewer. The original plan stated that employers with more than 100 employees could claim the credit for wages in employees. Some additional requirements are stated further on in this article.
PPP Loans
Even if an employer has already taken advantage of the Paycheck Protection Program (PPP), employers can take advantage of the Employee Retention Credit. A retroactive process, there is a possibility that there could be additional changes.
During 2021, the ERC is fully refundable, and is considered a cash payment. This payment from the IRS assists with the many payroll tax expenses and doesn’t work exactly like income tax credit. It is important that a business files Form 941 to capture this credit, or to file the IRS Form 941-X which is the Amended Quarterly Payroll Tax Return. The time period on this should remain within three years after the initial filing.
The Necessary 3 Qualification Requirements COVID Tax Credits
Reading carefully through instructions in order to meet eligibility requirements and to fully understand the qualified wages is important. The breakdown of the most important qualification requirements include the following:
1. Period of Eligibility
The employees within a company must be paid within March 12, 2020 to December 31, 2021. The below requirements must be followed:
● Business must have been suspended/shutdown because of a governmental order
● 50% less gross receipts in the same quarter as 2019 for 2020
● 20% less gross receipts than the same quarter in 2019 for 2021
2. Eligibility for Wages
Dealing with the ErC and the employer’s piece of Social Security taxes, the limit on qualified wages has been eliminated. The wages wouldn’t have exceeded what the employee could have earned the 30 days before the period of qualification.
3. Expenses Related to Health Plans
Expansion into qualified health plan expenses for the COVID-19 tax credit is very important. This relates to if employers didn’t pay any wages for a certain period.
Tax law constantly evolves and nothing is constant. These are just the most recent updates, but it is always important to check reputable sites in case the government or Congress adjusts the COVID-19 relief.
Talking with an expert can never hurt. To determine if one qualifies as an employer and the steps that are necessary to check if everything is filed correctly, reach out to experts in the field.
Reach Out Today
ERC Benefits are your helping hand when it comes to anything credit! We are your best source for reliable, expert, and ideal tax consulting services with quick and efficient filing processes. Not only is our team ready to help right away, the team can help answer your questions and see if BOTH the credit and the PPP loan can be attained.
