The COVID relief bill, also known as American Rescue Plan Act of 2021 (H.R. 1319), extends the Employee Retention Tax Credit (ERTC) through December 31, 2021.

Employee Retention Credit

The Employee Retention Credit is a fully refundable tax credit for employers equal to a percentage amount of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees.

5 Key takeaways:

1) Employee Retention Credit – 2020 vs 2021 scenarios

1. A) For tax year 2020, the refundable tax credit is: 50% of qualified wages paid per employee (up to a maximum amount of $5000 per employee for the entire year)
2. B) For tax year 2021, the refundable tax credit is: 70% of qualified wages paid per employee (up to a maximum amount of $7000 per employee, per quarter and up to $28,000 for the entire year)

2) Who is an Eligible Employer? 

Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business, including tax-exempt organizations, that either:

1. A) Fully or partially suspend operation during any applicable calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or

B ) Experience a significant decline in gross receipts during the calendar quarter.

3) What is a significant decline in gross receipts?

The gross receipts test differs depending on the year.

For 2020, the decline in gross receipts had to be at least 50% when compared with the corresponding quarter in 2019.

To claim the credit in 2021, the decline in gross receipts must be at least 20% when comparing the 2021 quarter with the corresponding 2019 quarter.

4) When is the operation of a trade or business partially suspended for the purposes of the Employee Retention Credit?

The operation of a trade or business is partially suspended if an appropriate governmental authority imposes restrictions on the employer’s operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 such that the employer can still continue some, but not all of its typical operations.

5) Against what employment taxes does the Employee Retention Credit apply?

The credit is allowed against the employer’s share of social security taxes under section 3111(a) of the Internal Revenue Code (the “Code”), and the portion of taxes imposed on railroad employers under section 3221(a) of the Railroad Retirement Tax Act (RRTA) that corresponds to the social security taxes under section 3111(a) of the Code.

PDR CPAS + ADVISORS

Our team of professionals at PDR CPAS + ADVISORS can help you understand the applicability, analyze your options and assist in implementing this tax credit.

1. Assessment of employer eligibility
2. Review of documentation required to be submitted to tax authorities
3. Assistance with filing of tax forms to claim credit