Employee Retention Tax Credit

This page will be updated continuously to reflect the most recent information. This page was last updated on March 12, 2021.

 

Overview

Congress has passed several rounds of financial assistance and relief in response to the COVID-19 pandemic, including most recently the American Rescue Plan.  The American Rescue Plan includes additional tax relief for businesses through the extension of the Employee Retention Tax Credit (ERTC).

 

*** WHAT IS NEW IN THE AMERICAN RESCUE PLAN ***

The American Rescue Plan extends the ERTC through December 31, 2021.  After June 30, 2021, the ERTC becomes a refundable payroll tax credit against the employer share of the Medicare hospital insurance tax.  Start-ups that opened after February 15, 2020, are also now eligible.  Details are below.

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Extension of credit availability.  TheCoronavirus Aid, Relief, and Economic Security (CARES) Act created a refundable payroll tax credit for businesses (large and small) and non-profits that retain their employees during the COVID-19 crisis.  The credit was originally provided for wages paid between March 12, 2020, and December 31, 2020.  The American Rescue Plan extends the credit through December 31, 2021.

  • The credit is equal to 70 percent of qualified wages.
  • The credit is capped at $10,000 in wages per employee,per quarter.

 

Eligibility requirements:

  • Employers may claim the credit if they experience a 20 percent reduction in gross receipts for a quarter in 2021 compared to the same quarter in 2019.  Business may continue to claim the credit if their operations are fully or partially suspended by a COVID-19 lockdown order.
  • In 2021, a company with 500 or fewer employees will be eligible to claim the credit even if its employees are working.
  • Certain governmental employers may claim the credit, including state- and local-run colleges and universities and entities whose principal function is providing medical or hospital care.
  • Start-ups that were not in business until after February 15, 2020, and that have less than $1 million in annual gross receipts are now eligible, under the American Rescue Plan.

 

PPP availability:

  • A company that receives a PPP loan or another small business loan or grant under the American Rescue Plan or another COVID relief law is allowed to claim this credit. However, a company may not “double dip” and claim a credit for wages paid with the proceeds of a forgiven PPP loan, a restaurant revitalization grant, or a shuttered venue operators grant.

 

Applying the tax credit:

  • The credit can be claimed against the business or non-profit’s quarterly payroll tax liability and is fully refundable to the extent of excess. 
  • After June 30, 2021, the credit can be claimed as a fully refundable credit against the employer’s share of the Medicare hospital insurance tax.

 

More information.  Please check the IRS’s website for more information as it becomes available: https://www.irs.gov/coronavirus/coronavirus-tax-relief-for-businesses-and-tax-exempt-entities.