After this article was published in February 2021, the Employee Retention Tax Credit was expanded for the entirety of 2021. Then, the Infrastructure Investment and Jobs Act, signed into law on November 15, 2021, set the ERTC to expire at the end of the third quarter of 2021. Read more about the tax provisions in the infrastructure bill here.
One of the big highlights of the Consolidated Appropriations Act, 2021 is the expansion and extension of the Employee Retention Tax Credit (ERTC). This change is significant because now, under the new law, some businesses can take advantage of both the Paycheck Protection Program (PPP) and the ERTC — as long as there is no double dipping with the same funds.
The ERTC and the changes brought about by the CAA, 2021 are complex and nuanced. In this article we’ll focus on how your business may be able to claim the tax credit even if you already received a PPP loan.
A Look Back at the Original ERTC Under the CARES Act
First, we need to look back at the origin of the ERTC. Created under the CARES Act, which was signed into law on March 27, 2020, the ERTC encouraged businesses to keep employees on their payroll and continue providing medical benefits during the pandemic.
Businesses that were either partially or fully closed by a COVID-19 lockdown order, or in any quarter of 2020 had gross receipts of less than 50% of gross receipts for the same quarter in 2019, could take advantage of the ERTC.
Both for-profit and tax-exempt organizations could claim the 50% tax credit, which was capped at $5,000 for up to $10,000 of qualified wages paid between March 13 and December 31, 2020 per employee.
With regard to the Paycheck Protection Program, any organization that received a PPP loan was simply ineligible to receive the Employee Retention Tax Credit.
How the ERTC Is Expanded Under the CAA, 2021
The Consolidated Appropriations Act, 2021, signed into law by President Trump on December 27, 2020, expanded and extended the ERTC.
Under the CAA, 2021, the credit amount was increased to 70% (up from 50%) of qualified wages, for each of the first two quarters in 2021 which results in a maximum tax credit of $14,000 per employee. In addition, you only need to show a decline in revenue of more than 20% (instead of 50%) for the first two quarters in 2021.
Now let’s talk about PPP loans and the Employee Retention Tax Credit under the new law. This is a significant change that will be helpful to many businesses.
Both for-profit and tax-exempt organizations that received a PPP loan are now eligible to claim the tax credit, as long as the credit is not claimed for wages that were paid with proceeds from a PPP loan that’s been forgiven. In other words, there can be no double dipping.
ERTC Eligibility Period Is Extended
The new law extended the ERTC availability to June 30, 2021 (extended from December 31, 2020). The new rules surrounding the expanded ERTC, specifically in regards to PPP as noted above, are now retroactive for the original ERTC qualification period (March 13 - December 31, 2020).
That’s really good news for employers that took PPP loans. If you received a PPP loan in 2020 and paid qualified wages in excess of the amount of the forgiven PPP loan to pay wages, you can file an amended employment tax return to claim the credit for 2020, as long as you are otherwise eligible for the credit.
For example, let’s say your business received a PPP loan in the amount of $100,000 in 2020. You used the PPP loan for payroll costs between May and July 2020. In April due to a government shutdown, you were forced to close your business but you still paid your three employees $4,000 each. In this case you would be eligible to file an amended payroll tax return to receive a tax credit of $6,000
As we said, the expanded ERTC is complex and has many provisions that we haven’t covered here.
Contact our tax department here or call 800.899.4623 to learn whether your business can claim the Employee Retention Tax Credit.