The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted Dec. 27, 2020, made a number of changes to the employee retention tax credit previously made available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including modifying and extending the credit for six months through June 30, 2021. Several of the changes apply only to 2021, while others apply to both 2020 and 2021. Here is a breakdown of the changes.

CARES Act Consolidated Appropriations Act of 2021
Time Period Credit is Available Qualified wages paid after Mar. 12, 2020, and before Jan. 1, 2021. Qualified wages paid after Mar. 12, 2020, and before July 1, 2021 (now available in the first two quarters of 2021).
2020 Year Eligibility Requirements Businesses with operations that were either fully or partially suspended by a COVID-19 governmental order and only during the period the order is in force; or

Gross receipts were less than 50% of gross receipts for the same quarter in 2019 until such quarter as gross receipts are 80% of same quarter in 2019.

Businesses not in existence in 2019 could use a comparison to 2020 for credit purposes.

 No change.

Gross receipts were less than 80% of gross receipts for the same quarter in 2019 until such quarter as gross receipts are 80% of same quarter in 2019.

No change.
2021 Year Eligibility Requirements Credit unavailable for 2021 wages. Beginning Jan. 1, 2021, the credit will be available to businesses with operations that are either fully or partially suspended by a COVID-19 governmental order and only during the period the order is in force; or

Gross receipts were less than 80% of gross receipts for the same quarter in 2019 until such quarter as gross receipts are 80% of same quarter in 2019.

Businesses not in existence in 2019 may use a comparison to 2020 for credit purposes.
Percentage of Wages The credit was 50% of the qualified wages paid to an employee, plus the cost to continue providing health benefits to the employee. Beginning Jan. 1, 2021, the credit is 70% of qualified wages, plus the cost to continue providing health benefits to the employee.
Annual Maximum Credit Per Employee Annual cap of $5,000 per employee ($10,000 in qualified wages times 50%). Beginning Jan. 1, 2021, the cap is increased to $7,000 per employee for each of the first two quarters of 2021 ($10,000 in qualified wages times 70%) for a possible $14,000 credit per employee.

The 2021 credit is available even if the employer received the $5,000 maximum credit for wages paid to such employee in 2020.
Employer Size & Services Performed Requirements Employers who had 100 or fewer full-time employees in 2019, all employee wages are available for the credit calculation, regardless of whether the employee is performing services or has been furloughed.

Employers with more than 100 employees could not take the credit for wages paid to an employee performing services for the employer (either teleworking or working at the workplace, even though at reduced capacity due to reduction in business). Only wages paid to employees who were furloughed or have reduced hours are eligible for the credit.

 Beginning Jan. 1, 2021, the threshold increases to 500.

An employer with 500 or fewer employees will be eligible for the credit, even if employees are working.

When calculating the 500-employee threshold, the employees of all affiliated companies sharing more the 50% common ownership are aggregated.
Retention Credit for Employers Who Obtained a PPP Loan Repealed – A company that received a PPP loan was ineligible to claim the employee retention credit. (No longer applies).

This disallowance rule extended to all affiliated companies that shared common ownership, so that if one company received a PPP loan, any other company with more than 50% common ownership was ineligible to claim the credit.

 This change is retroactive to the effective date under the original law for wages paid after Mar. 12, 2020.

A company that received or receives a PPP loan is no longer prohibited from claiming the employee retention tax credit. The credit, however, may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven.

A company that received a PPP loan in 2020 and paid qualified wages in excess of the amount of the forgiven PPP loan used to pay wages, and is otherwise eligible to claim the credit, can claim the credit retroactively. The IRS is expected to issue guidance on how to claim the credit retroactively.

Companies related to a PPP borrower that did not claim the credit because of the affiliation rules should be able to claim the credit retroactively, if they are otherwise eligible for the credit.
Disallowance of Credit for Governmental Entities 
 The employee retention credit was not available to any federal, state or local governments, or any agency or instrumentality thereof. Effective Jan. 1, 2021, the following entities are eligible for the credit:

  • Public colleges or universities
  • Organizations whose principal purpose is providing medical or hospital care
  • Certain federal instrumentalities, such as federal credit unions

If you have questions about applying the employee retention tax credit for your business, contact Doeren Mayhew’s CPAs and advisors today.