April 15, 2021
Morgan T. Dilks
As part of the CARES Act enacted on March 27, 2020, Congress enacted a tax credit which provided eligible employers with a refundable tax credit for up to $5,000 per employee for qualified wages paid from March 13, 2020 through December 31, 2020. This is called the Employee Retention Tax Credit (the “2020 ERTC”). Eligible employers may be eligible to receive a refundable tax credit under the 2020 ERTC for up to $5,000 if their business was either (i) partially or fully suspended due to COVID-19 orders from an appropriate government authority, or (ii) experienced a significant decline in gross receipts.
On December 20, 2020, Congress passed the Consolidated Appropriations Act of 2021 (“CAA”), which greatly expanded the 2020 ERTC. Under the 2021 ERTC, an eligible employer can obtain a refundable tax credit capped at $7,000 per employee, per calendar quarter, for 70% of qualified wages up to $10,000 paid per calendar quarter to employees from January 1, 2021 through June 30, 2021.
The specific rules determining eligibility vary between the 2020 ERTC and the 2021 ERTC, but are structured similarly. To qualify for the 2020 ERTC, an eligible employer must have experienced a partial or full suspension of operations, or have experienced a significant decline in gross receipts, where gross receipts in a given quarter for 2020 were reduced by more than 50% over the same quarter in 2019. This was expanded for the 2021 ERTC. While the same rules apply regarding partial and full suspension of operations as they did for the 2020 ERTC, for the 2021 ERTC an eligible employer is considered to have experienced a significant decline in gross receipts where gross receipts in a given quarter for 2021 were reduced by more than 20% over the same quarter in 2019.
Under the CARES Act, an eligible employer who previously accepted a PPP Loan was not eligible to pursue the 2020 ERTC. This has been changed retroactively by the CAA, and now, employers who accepted PPP Loans in 2020 can also qualify for the 2020 ERTC.
Determining whether or not a business can take advantage of the 2020 and/or 2021 ERTCs can be tricky. Some businesses have experienced widespread suspensions due to government orders, with little effect on their gross receipts. Others may have experienced major effects on gross-receipts without having their operations partially or fully suspended by government orders. If you think you may qualify, but would like to discuss your options, feel free to contact me at mdilks@RKWlawgroup.com.
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