Employee Retention Tax Credit (ERTC):  Key 2021 Updates

The Employee Retention Tax Credit (ERTC), was created back on March 27, 2020 along with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  In December 2020, it was altered so that many employers could now take advantage of it, even if they received Paycheck Protection Program loans – retroactively for 2020 and currently for 2021.  Now, the program has been updated once again to be even more advantageous to employers: they will be eligible to receive up to $28,000 per employee for 2020 and 2021 combined.  MP’s HR services team reveals the latest updates you need about how this program could infuse a huge cashflow back into your payroll system.   

3 New Changes to the Employee Retention Tax Credit 

1. The ERTC has been extended for all of 2021.  While previously, employers could only claim it for the first and second quarters of the year, they can now claim it for quarters 1-4.  This will mean that employers can earn exponentially higher credits.  Employers will have the ability to claim up to 70% of a worker’s qualified wages (i.e., wages paid during that time period that were not drawn from PPP loans) up to $10,000 every quarter.  This maxes out at $7,000 every quarter per employee or $28,000 in tax credits per employee for the year 2021 (except in the cases described below).   

2. Severely distressed employers can claim a higher ERTC.  This change to the program allows an employer that qualifies as “severely financially distressed” to treat all wages paid to all their workers (no matter how many they have) as qualified wages for 2021.  This means they can claim 70% of all these wages in ERTC, making the tax credit uncapped.  Eligible employers will be unlimited in the tax credits they could claim. A “severely distressed business” must prove at least a 90% decrease in gross receipts of their third or fourth quarter of 2021 as compared to the same quarter in 2019.   

3. Some employers will count as “recovery startup businesses.”  This term applies to any employer that started their operations after February 15, 2020 and can show average annual gross receipts of up to $1 million.  These employers can claim a $50,000 credit per calendar year without needing to prove the usual required gross receipts loss in 2020 and 2021.  They also don’t have to prove a period of partial or complete operations shutdown due to a government order.   

Don’t forget about the ERTC for 2020 

In addition to the monies they can claim for 2021, HR and payroll experts advise employers to remember that they can retroactively claim ERTC for 2020 (even if they received a PPP loan, which initially was a barrier).  They can claim up to 50% of an employee’s wages up to $10,00.  This maxes out at $5,000 per employee for the year. 

View more ERC Resources here.