Expanded Employee Retention Credit

December 31, 2020 by Mitch Giese
Copeland Buhl

The employee retention credit (ERC) was created as part of the CARES Act from March 2020. The latest COVID relief law includes important changes to the ERC and extends the credit through 6/30/2021.

Employers must still meet one of two tests in 2021 to qualify for the credit:

  1. Full or partial shut down by government order due to COVID-19, or
  2. A 20% reduction of gross receipts compared to the same calendar quarter in 2019.

The 2021 credit is based on 70% of wages.  Only the first $10,000 paid to each employee per quarter qualifies. The maximum 2021 credit is $14,000 per employee ($10,000 max wages per quarter x 2 quarters x 70%).

The maximum 2020 credit is $5,000, based on 50% of wages up to $10,000 per employee per year.

Under the old rules, employers with more than 100 full-time employees could only include wages if the employee was not providing services. This threshold has been increased to 500 employees for the 2021 credit.

The changes noted above apply prospectively for the credit claimed on 2021 wages.  There is no change in the calculation for the 2020 credit.

PPP Loan Recipient Eligibility

Originally, PPP loan recipients were not eligible for the ERC. This has been retroactively changed to allow PPP loan recipients to claim the ERC for both 2020 and 2021. Any wages used for the ERC cannot be used in calculating PPP loan forgiveness, but employers can now claim the credit and receive loan forgiveness if they paid enough wages.

The other eligibility requirements remain the same. See our original article for more information.

Claiming the Credit

The 2021 credit will be claimed on the company’s first and/or second quarter payroll returns. We are awaiting further guidance on the mechanics for claiming the credit retroactively for PPP loan recipients that were not previously eligible.

Contact your Copeland Buhl representative for more information.