How the Second Stimulus Package Changed the Employee Retention Credit?
On December 27, 2020, Former President Trump signed the second stimulus package into law. Aside from issuing a $600 per qualified person stimulus check, the package extended the employee retention credit through June 30, 2021.
The bill, known as the Taxpayer Certainty and Disaster Tax Relief Act of 2020, provides several changes to the ERC, including the amount claimed and who may be eligible to receive the credit.
Read on to learn about the changes to the ERC and how they may affect your business.
What Does an Extension of the ERC Mean?
The ERC was originally part of the CARES Act as passed in March 2020. Under the new package, the relief is extended an additional six months, through June 30, 2021. Under this extension, some changes apply to anything occurring between December 27, 2020, and June 30, 2021. However, some changes are retroactive and will apply to events that occurred in 2020 as well as events occurring in 2021.
The retroactive events relate to partial shutdowns that occurred in 2020. If a company had a partial shutdown and continued to pay employees prior to receiving funds from a Payroll Protection Plan (PPP) loan, they qualify for the ERC.
Furthermore, businesses that used all of their PPP loan money and saw gross receipts of 2020 drop by 50% from their 2019 calendar quarter, can retroactively receive the ERC. Many in-person companies, such as restaurants, brick and mortar stores, and salons, qualify since they can still only operate at 50% capacity.
Companies may also qualify for the ERC for 2021. They may qualify if they either have not applied or do not qualify for a second PPP loan, and their gross receipts are 20% less than the same calendar quarter of 2019.
How Much Money Can Eligible Employers Claim?
Under the new Act, the amount of money businesses may claim has changed. Under the CARES Act, employers could claim up to 50% of qualified wages paid from March 12, 2020, through December 31, 2020. The maximum wages per qualified employee equaled $10,000, providing employers up to $5,000.
However, under the new law, employers can claim up to 70% of qualified wages paid from December 31, 2020, through June 30, 2021. This period encompasses two calendar quarters. The maximum allowed wages per quarter is $10,000. Therefore, employers can claim up to $7,000 per employee for one quarter or $14,000 per employee for two quarters.
What Are Qualified Wages?
The new Act also changed the definition of qualified wages for the ERC. Any employer with over 500 full-time employees in 2019 provides qualified wages to employees when they are not working due to a decline in business. For instance, if servers in a restaurant cannot work, employers still pay their benefits or salaries when the establishment is shut down or operating at a reduced capacity; those paid benefits and salaries may be qualified wages.
Suppose an employer has less than 500 full-time employees in 2019. In that case, qualified wages include any wages or benefits provided to employees when the business is operating at reduced capacity or the business closed for a temporary period due to COVID. The employer must have lost money from quarter to quarter.
Can I Claim the ERC Even If I Received a PPP Loan?
Under the CARES Act, employers could not claim the ERC if they received money under a PPP loan. The new Act changes this provision. Retroactive to March 27, 2020, any business that received a PPP loan can now claim the ERC. However, they can only claim the qualified wages not used as payroll costs to obtain the PPP Loan’s forgiveness.
To learn more about the ERC under the new stimulus package, contact the HR experts at WorkplaceHCM at 856.334.9711. Our team of qualified HR experts can help you determine your rights regarding ERCs and gather any required information to claim them when you file your taxes.