Overview of the Updated Employee Retention Tax Credit

As a result of the most recent COVID-19 Relief Bill, we have been sending out a series of Client Alerts addressing specific aspects of the legislation impacting our clients.  This Client Alert addresses the Employee Retention Tax Credit (“ERTC”), created under the CARES Act to incentivize and reward employers for retaining its workforce despite a decline or disruption in business due to COVID-19, and expanded in impact in availability by the Relief Bill.

Review of the ERTC Created by the CARES Act

The CARES Act created the ERTC, which is a refundable tax credit against certain employment taxes.  Eligible employers—under the CARES Act, employers with 100 or fewer FTEs that either were closed due to a government order or had a decline in gross receipts of 50% or more comparing the same quarter in 2020 to 2019—could claim a credit of 50% of qualified wages (including certain health plan costs) up to $10,000 per employee for a quarter (capping the credit at $5,000 per employee).  The original ERTC was available from March 12, 2020 through January 1, 2021.  Under the CARES Act, employers that received a PPP Loan were ineligible to claim the ERTC.

Expanded and Enhanced ERTC Under the Relief Bill

The Relief Bill expands the availability and enhances impact of the ERTC for the first two quarters of 2021. 

Under the Relief Bill:

  • The ERTC is extended through Q1 and Q2 of 2021;
  • In Q1 and Q2 of 2021, recipients of PPP Loans are now eligible to claim the ERTC;
  • The credit amount is increased to 70% of qualified wages, or $7,000 per quarter per employee, or $14,000 for 2021 in the aggregate per employee;
  • Eligibility requirements are expanded, now being: (1) a business is closed pursuant to a government order for a period of time (the same as before), or (2) the business has a 20% reduction in gross receipts for a quarter in 2021 compared to the same quarter in 2019;
  • Employers with 500 or fewer FTEs—up from 100 FTEs under the CARES Act—are now eligible to claim the ERTC; and
  • The Treasury is directed to issue guidelines for employers to claim the tax credit in advance, instead of claiming it as payroll taxes become due. 

This Client Alert simply provides an overview of the expanded ERTC.  If you have any questions regarding the intricacies of the ERTC or any other aspect of the Relief Bill, please contact a MacDonald Illig attorney.