Employee Retention Credit revamped under American Rescue Plan Act
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (ARPA). The ARPA expands the benefits of the Employee Retention Credit (ERTC), which was originally enacted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and subsequently modified by the Consolidated Appropriations Act, 2021.
The modifications of the credit under the ARPA apply to wages paid after June 30, 2021, and before January 1, 2022, and generally include: enhancing the credit for severely financially distressed employers, creating specific credit criteria for certain recovery startup businesses and extending the statute of limitations for assessments under the credit.
ERTC eligibility
As updated by the ARPA, the credit retains most of the framework for the 2021 ERTC as laid out by the Consolidated Appropriations Act. Namely, an employer may be eligible for the credit if they either experienced a decline of more than 20% of gross receipts in any quarter in 2021 compared to the same quarter in 2019 or were required to fully or partially suspend their business operations due to a governmental order.
A taxpayer can elect to determine their decline in gross receipts based on the prior calendar quarter (e.g., comparing Q4 of 2020 to Q4 of 2019 to determine eligibility for Q1 of 2021.) The credit amounts to a 70% credit on eligible wages up to $10,000 per qualifying quarter (i.e., $7,000/quarter.) The eligibility of wages for the credit depends on whether the taxpayer constitutes a large employer (more than 500 full-time employees.) For non-large employers, any wages paid to employees can be eligible for the credit; however, large employer’s qualified wages are only those paid to employees for not working.
Severely financially distressed employers
The ARPA lays out more forgiving requirements for severely financially distressed employers. Beginning in the third quarter of 2021, employers that have experienced at least a 90% decline in gross receipts compared to the same quarter in 2019 may take all wages paid during those quarters into account for the ERTC. The limitation for large employers on wages paid to employees for not working does not apply to severely financially distressed employers.
Recovery startup businesses
An additional benefit added for certain businesses is the recovery startup business provision. Recovery startup businesses — defined as any employer that began operations after February 15, 2020, and has an average annual gross receipt amount up to $1,000,000 — are eligible for a $50,000 credit per calendar quarter. If a business meets the definition of a recovery startup business, they are not required to meet the gross receipts test nor have been subject to a government shutdown in order to claim the credit.
Wages that do not qualify
The ARPA elucidates that wages taken into account for the new restaurant revitalization grant, Paycheck Protection Program (PPP), shuttered venues grant and Family and Medical Leave Act (FMLA) do not qualify for wages used for calculating the ERTC. In addition, the ARPA extends the statute of limitations for assessment of a taxpayer of any amount attributable to the ERTC for five years.
Wipfli can help
The ERTC can offer significant benefits to employers for both 2020 and 2021. Please reach out to a Wipfli representative to assist you in determining whether you qualify for the credit.
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