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Employee Retention Credit Changes Under the CAA

COVID-19 has shut down many businesses, causing widespread furloughs and layoffs. Fortunately, employers that keep workers on their payrolls are eligible for a refundable Employee Retention Tax Credit (ERTC), which underwent some big changes under the Consolidated Appropriations Act.

Employee retention credit changes

Background on the Employee Retention Tax Credit 

The CARES Act, enacted in March of 2020, created the Employee Retention Tax Credit. The credit:

  • Equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter
  • Was subject to an overall wage cap of $10,000 per eligible employee
  • Was available to eligible large and small employers

The Consolidated Appropriations Act, enacted December 27, 2020, made big changes to the Employee Retention Tax Credit by expanding and extending it. Under the CARES Act rules, the credit only covered wages paid between March 13, 2020, and December 31, 2020. The new law now extends the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021.

In addition, for the first two quarters of 2021 ending on June 30, the new law increases the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter (versus 50% under the CARES Act). And it increases the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules).

Interaction with the PPP

In a change retroactive to March 12, 2020, the new law also stipulates that the employee retention credit can be claimed for qualified wages paid with proceeds from Paycheck Protection Program (PPP) loans that aren’t forgiven.

What’s more, the new law liberalizes an eligibility rule. Specifically, it expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.

We can help

These are just some of the changes made to the employee retention tax credit, which rewards employers that can afford to keep workers on the payroll during the COVID-19 crisis. If you need assistance or have questions or concerns, we’re here to help. Please email [email protected] or call 443-320-4101.

Author: Megan O’Donnell

This entry was posted on Monday, January 11th, 2021 at 1:29 pm. Both comments and pings are currently closed.

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