It goes without saying that thousands of businesses have been adversely affected by Covid-19 and the subsequent economic downturn. While several federal and state measures have been enacted to minimize the financial burden, the recent expansion of the Employee Retention Credit will provide significant aid to laboratories in the form of a federal payroll tax credit.
Retroactive Employee Retention Credit Changes
The Consolidated Appropriations Act of 2021 brought a retroactive change to the Employee Retention Credit, which was introduced with the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of 2020. Under previous laws, employers receiving a PPP loan were not eligible for the credit. However under the new law, even those receiving PPP loans are eligible, but they must exclude any covered period wages that were forgiven by the SBA.
The Employee Retention Credit is a 50% payroll tax credit for small employers of 100 or fewer full-time employees for wages paid between March 12th and December 21st, 2020. Employers are only eligible during this timeframe if their business was shut down by the government or they experienced a 50% decline in receipts in a 2020 quarter compared to the same quarter in 2019. Once they are eligible, they continue being eligible for each quarter thereafter until their receipts are greater than 80%. Employers with greater than 100 full-time employees can still be partially eligible.
Fully or partially shut down by government order means:
- The orders have come from state or local governments having jurisdiction over the entity;
- The order must limit commerce, travel, or group meetings due to Covid-19; or
- The order must affect an employer’s trade or business.
A special note – if an employer has multiple locations and one geographic area meets this test, the whole company qualifies.
2021 Employee Retention Credit
The credit not only got a retroactive enhancement, but has also been extended through June 30, 2021, with some improved benefits in 2021. The 2021 credit is a 70% payroll tax credit and employers with 500 or fewer full-time employees are eligible if they experience a 20% decline in gross receipts from the comparable quarter to 2019. If an employer receives the maximum credit of $5,000 in 2020, they are still eligible to get the full $7,000 credit in the first two quarters of 2021 on the same employees.
The Employee Retention Credit is a great way for laboratories that paid their employees during the pandemic to increase their cash flow. While uncertain times still lie ahead, the retroactive expansion of this credit, along with additional legislation aimed to help struggling businesses, are making what seemed to be a bleak 2021 economy a touch brighter.
For any questions about this credit, or how we can help you navigate these changes, please contact our team.