The Consolidated Appropriations Act, 2021 extends and expands the employee retention credit first created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The employee retention credit is designed to encourage businesses to keep workers on their payroll and support small businesses and nonprofits through the Coronavirus economic emergency.
Eligible employers may claim the credit against employment taxes equal to a percentage of qualified wages paid to employees who are not working due to the employer’s full or partial suspension of business or a significant decline in gross receipts.
Calendar Quarters Beginning After December 31. 2020
For calendar quarters beginning after December 31, 2020, the amount of the credit is increased from 50% to 70% of qualified wages. The limitation per employee is also increased from amounts paid up to $10,000 per year to amounts paid up to $10,000 per quarter. Eligible wages are wages paid between March 12, 2020, and July 1, 2021, extended from January 1, 2021.
In addition, the definition of an eligible employer is more inclusive under the Consolidated Appropriations Act, 2021 and thereby allows a greater number of employers to qualify.
An eligible employer is defined as:
However, if the employer was not in existence as of the beginning of the same calendar quarter in 2019, then the employer may use the same calendar quarter in 2020. Employers also have an election to determine if they meet the gross receipts test based on the immediately preceding quarter.
Qualified wages are based on the business’s average number of full-time employees in 2019.
There are special rules for seasonal workers. If an employer is eligible due to a full or partial suspension of operations, only wages paid while operations are suspended count as qualified wages.
Employers must report their qualified wages on their federal employment tax returns, usually Form 941, Employer's Quarterly Federal Tax Return. They can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit. They can also request an advance of the employee retention credit by submitting Form 7200.
No Double Benefit
There are limitations when considering an eligible employer's ability to claim the employee retention credit. This credit is impacted by other credit and relief provisions as follows:
Because of the enhancements and expansion of the employee retention credit, your business may now have an opportunity to take the advantage of this tax benefit. Please call our office to discuss the employee retention credit and other business tax relief under the Consolidated Appropriations Act, 2021.