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Employer Retention Credit Changes

Tiffany L. Kuntemeier

January 11, 2021

The Consolidated Appropriations Act 2021 brought a retroactive change to the Employee Retention Credit, which was introduced with the CARES Act in March of 2020. Under previous laws, employers receiving a PPP loan were not eligible for this credit. Under this new law, even those receiving PPP loans are eligible, but must exclude the wages during the period covered by PPP forgiveness. 

Background

The Employee Retention Credit was introduced with the CARES Act and provides small employers opportunity for a refundable credit towards payroll taxes. The credit for 2020 is equal to 50% qualified wages paid between March 12, – December 31, 2020, and has a maximum credit of $5,000 per employee.

See full article from March here for details on eligible employers and qualified wages.  

Benefits continued into 2021

This credit not only got a retroactive enhancement, but has also been extended through June 30, 2021 with some improved benefits in 2021. Some enhancements include:

  • The 2021 credit is increased from 50% to 70% of qualified wages. 
  • The limitation per employee is raised to $10,000 per quarter from $10,000 annually. 
  • Eligible Employers defined as an employer with 500 or fewer FTE are eligible if they experience a 20% decline in gross receipts from the comparable quarter to 2019. 

These are annual credits, so if the employer gets a maximum credit of $5,000 in 2020 they are still eligible for the full $7,000 credit in the first two quarters of 2021 on the same employees! However, the credit cannot be doubled on the same employee with other credits. Examples include employers who are receiving credits for employees under WOTC or paid sick or family leave.

Employers who were not initially eligible due to a PPP loan can claim their 2020 credit through amended quarterly Form 941s for the eligible period. Employers must claim this 2021 credit on their quarterly Form 941 filings or they may request an advance of the credit on Form 7200. 

Please contact our team or your Mueller Prost specialist directly for any support.

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