New legislation from the Consolidated Appropriations Act, 2021 creates a chance for some business owners to take advantage of both another round of Paycheck Protection Program (PPP) loans and expands the Employee Retention Credit (ERC).
Several changes specific to the ERC can provide an opportunity for additional relief. The significant changes that affect small businesses include:
- Extension of the ERC through June 30, 2021
- Increased credit rate from 50% to 70% of qualified wages
- Increased the limit on per-employee qualified wages from $10,000 for the year to $10,000 for each quarter
- Reduced year-over-year gross receipts decline from 50% to 20%
- Created a safe harbor to allow employers to use prior-quarter gross receipts to determine eligibility and
- Public Colleges, universities, hospitals, and medical facilities are now eligible to take the credit
The legislation means that employers who receive PPP loans may still qualify for the ERC retroactive to March 13, 2020.
Previously, small businesses receiving a PPP loan during the first round of relief couldn’t take advantage of the ERC. However, with the new legislation, a business can take the ERC even if they received PPP funding and loan forgiveness as long as the payroll identified for the ERC was not paid out of PPP funds. As noted above, this change is retroactive to March 13, 2020.
Specifically, the bill allows eligible entities to claim the prior quarter’s credits from 2020 in the quarter in which the bill was signed: the fourth quarter of 2020.
The ERC is a fully refundable payroll tax credit for employers that, for 2020, is equal to 50% of qualified wages employers paid beginning March 13, 2020. Businesses are eligible if:
- They were fully or partially suspended due to an order from a governmental authority limiting travel, business, and meetings during the quarter of payroll not paid out of PPP funds, or:
- The business had a reduction in gross receipts of 50% or more during a calendar quarter compared to the same calendar quarter in 2019.
When the covered period for PPP loans was extended to 24 weeks, many small business applications for debt forgiveness qualified for 100% forgiveness on payroll alone without considering the other eligible nonpayroll costs. However, those other costs now may play a big role in receiving the ERC benefit.
For businesses with fewer than 100 employees, the credit applies to all employee wages paid. For businesses with more than 100 employees, there are further restrictions in analyzing the ERC opportunity. The ERC requirements for qualified wages and business activity for 2020 are different than for the ERC on wages paid in 2021.
Should you need assistance in understanding the specifics and how they affect your business, please call Felsing LLC at 407-412-9222.
Source: Carl Peterson, CPA, CGMA, Vice President — Small Firm Interests, Association of International Certified Professional Accountants
