The recently enacted stimulus law expands and clarifies the CARES Act Employee Retention Credit (ERTC), key details are as follows:
Beginning on January 1, 2021 and through June 30, 2021, the provision:
- Increases the credit rate from 50% to 70% of qualified wages.
- Expands eligibility for the credit by reducing the gross receipts decline from 50% to 20% over a prior quarter.
- Qualified wages are increased from $10,000 in total per employee to $10,000 per quarter per employee.
- Qualified wage restrictions apply at 500 employees, rather than 100.
- Removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers.
- Allows businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year.
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit.
CARES Act clarification provisions which are retroactive to the effective date of March 13, 2020:
- Clarifies the determination of gross receipts for certain tax exempt organizations.
- Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee.
- Provides that employers who receive Paycheck Protection Program (PPP) loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.
The expanded rules should allow broader availability to businesses who incurred a decline in revenues or who have operations that were either fully or partially suspended. The credit can be applied for retroactively and is reported on payroll tax filings.
Please consult your payroll provider or tax advisor at WFY to discuss whether you qualify for this tax benefit. Click here to contact a WFY tax advisor.