American Rescue Plan Helps Keep Workers On The Job
The American Rescue Plan Act of 2021 (ARP) spends $1.9 trillion dollars in economic stimulus to help Americans recover from the economic hardships of the pandemic.
Here's one way it helps employers retain their employees.
The employee retention credit is a refundable payroll tax credit available to employers whose business was affected by the pandemic, either by mandated shutdowns or a 50 percent drop in gross receipts.
The actual qualifying details have been changed several times by various legislation passed in the last year and a half.
For 2020, eligible employers are entitled to a credit equal to 50 percent of qualified wages up to $10,000 per employee paid in 2020 during qualifying quarters — i.e., a total credit in 2020 of up to $5,000 per employee. The definition of qualifying wages (i.e., whether an employer can claim a credit for all wages or only wages paid for not providing services) depends on whether the employer had 100 or fewer full-time employees in 2019.
For 2021, Congress materially expanded the ERC, raising the 2019 full time employee threshold for qualifying wages to 500 employees and increasing the amount of the credit to 70 percent of qualified wages up to $10,000 per employee paid in each of the first and second quarters of 2021, which effectively translated into a credit of up to $14,000 per employee ($7,000 each quarter). Regardless of the year, the ERC always requires thoughtful coordination with PPP forgiveness.
New and Improved 2021 ERC
As changed by the Disaster Relief Act, an employer could claim the ERC only for the first two fiscal quarters of 2021.
The American Rescue Plan expanded the 2021 ERC to all four quarters and increased the maximum amount of the credit. Specifically, for quarters starting after June 30, 2021, the ARP codified the ERC into new Section 3134 of the Internal Revenue Code of 1986, as amended (IRC). IRC § 3134 extends the availability of the ERC through December 31, 2021.
Thus, qualifying employers who continue to qualify for all four quarters of 2021 can now receive up to $28,000 in ERC per employee ($10,000 quarterly wage cap times 70 percent times four quarters).
The ERC is complicated!
Because the ERC is so valuable, and likely to be misunderstood and misapplied, Congress took the unusual step of extending the statute of limitations for the IRS to assess amounts attributable to the ERC from the normal three years to five years. The statute of limitations begins to toll on the later of either the filing date of the original tax return that includes the calendar quarter with respect to which the credit is determined, or April 15 of the succeeding calendar year.
We recommend you contact your accountant for more details on the ERC.
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