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With the recent passing of The Consolidated Appropriations Act, 2021 (“CAA”), employers will continue to benefit from the Employee Retention Tax Credit through June 30, 2021.
Initially created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the refundable payroll tax credit was intended to help businesses retain their employees during 2020 despite impacts by the COVID-19 pandemic. The credit was equal to 50% of the first $10,000 of qualified wages paid by an eligible employer during 2020, or a maximum of $5,000 credit per employee.
The recent legislation amends the Employee Retention Tax Credit to be equal to 70% of qualified wages paid to employees after Dec. 31, 2020, but before July 1, 2021, up to $10,000 per quarter. This means the first two quarters of 2021 will allow for a maximum tax credit of $7,000 per employee per calendar quarter for a potential credit of $14,000.
Originally, eligible employers with under 100 employees were determined on a quarterly basis to include those that were either partially or fully shut down due to government orders, or suffered a decline of 50% or more in gross receipts when comparing the 2020 quarter to the same quarter in 2019. Under the CAA Act, the gross receipts “decline” threshold was reduced to 20%.
Qualified wages taken into account in calculating the 2021 credits are no longer limited to what the employer paid to the employees in any specific prior period. This is an expansion of the previous requirement and now employers that averaged 500 or fewer full-time employees can take advantage of the tax credit available in 2021.
Furthermore, qualified wages applicable to the tax credit may not be counted as forgivable payroll costs under the Paycheck Protection Program (PPP). However, employers may elect not to have wages eligible for the Employee Retention Tax Credit, should they want to apply for PPP loan forgiveness.
For assistance determining if you are eligible for the adventurous tax credit and calculating your qualified wages, contact Doeren Mayhew’s tax advisors.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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