The Employee Retention Credit: The Improved Benefits for Businesses
The pandemic has hurt many parts of the U.S. economy and caused a lot of people to lose their jobs. At the start of the national emergency, Congress created the Employee Retention Credit to encourage employers to keep their employees.
But the credit was made and changed by three different laws, which has caused a lot of confusion. Here is a brief summary of how the ERC for small business has changed from the CARES Act to the American Rescue Plan Act over the last year.
The CARES Act gives people a new tax break.
The ERC was created by the CARES Act, which went into effect in March 2020. It is for employers who keep workers on their payrolls. It was made to help stop people from losing their jobs during the COVID-19 pandemic.
Under the CARES Act, the amount of the tax credit was equal to 50% of the wages paid to qualified employees by a qualified employer in a 2020 calendar quarter, limited to $10,000 per year to each eligible worker. At first, the ERC small business grant only covered wages paid between March 13, 2020, and December 31, 2020.
Changes under the CAA
The Consolidated Appropriations Act (CAA) made the ERC last until December 2020 and made it much better. In particular, the CAA made the covered wage period last through the first two calendar quarters of 2021, which means it will end on June 30, 2021.
Also, for the first two quarters of 2021, which end on June 30, 2021, the CAA:
Increased the overall covered wage cap to 70% of qualified wages paid during the applicable quarter, up from 50% under the original CARES Act rules, and Increased the limit on covered wages for each employee to $10,000 of qualified wages paid during the applicable quarter. Before, the limit was $10,000 per year.
Another Extension and Expansion under the ARPA
On March 11, 2021, the ARPA became law. The ERC is extended from June 30, 2021, to December 31, 2021, and the credit rate stays at 70% during this time. In 2021, qualified wages can't be more than $10,000 per employee per calendar quarter. Finally, Congress moved the ERC back to September 30, 2021, except for Recovery Start Up Businesses.
Important Rules and Restrictions for 2021
A qualified employer can get the Employee Retention Credit if its gross receipts drop by a lot or if the government tells it to stop doing business in whole or in part. For 2020 Quarters, small businesses cannot have employed more than 100 full-time workers. For 2021, small businesses with up to 500 full-time workers can claim the credit whether or not the workers for whom the credit is claimed actually do work.
You can see how the myriad of law changes has left small businesses, and their accountants, uncertain about how to properly calculate this credit. At ERC-Refunds, we are pros and will help you do it right, in accordance with the changing laws.