Employee Retention Tax Credit Extended Through End of 2021

In our previous news alert dated February 19, 2021, we reviewed the very significant financial benefits offered by the Employee Retention Tax Credit (‘ERTC”) for businesses adversely impacted by the Covid-19 pandemic.

The ERTC was enacted by the CARES Act in March 2020 and provided a credit against payroll taxes equal to 50% of the first $10,000 of wages paid to an employee during a calendar quarter (i.e., maximum credit of $5,000 per employee per quarter) through the end of 2020.

The Consolidated Appropriations Act of December 2020 significantly expanded the ERTC by (i) extending the credit through June 30, 2021, (ii) increasing the credit to 70% of the first $10,000 of wages paid to an employee during a calendar quarter (i.e., maximum credit of $7,000 per employee per quarter), and (iii) expanded eligibility by allowing businesses that received PPP loans to also be eligible for the credit, reducing the decline in gross receipts test from 50% to only 20% and expanding the full-time employee count from 100 to 500 employees for rules relating to qualifying wages.

The American Rescue Plan Act signed into law on March 11, 2021 has extended the ERTC through the end of 2021.  The Act has made no changes to the credit amount or eligibility, other than further expansion for start-up businesses.

With the second round of PPP loans now coming to an end, the ERTC represents an opportunity for businesses to continue to receive federal relief payments throughout the remainder of 2021.  As discussed in our previous news alert, ERTC relief can be very substantial.  For example, in the case of a business with 100 employees, the maximum ERTC would be $700,000 per quarter or $2.8 million for 2021.  The credit is easily claimed on the quarterly Form 941 payroll filing and employers can access the money by offsetting payroll tax deposits.

We highly recommend that business owners and managers familiarize themselves with the ERTC rules to determine if they can avail themselves of this substantial government relief.

Last modified: March 19, 2021