The Consolidated Appropriations Act of 2021, which was signed into law on December 27, 2020, makes important changes to the Employee Retention Tax Credit provisions which broadened the ERTC, allowing even more employers to take advantage of this beneficial program.
Employers whose operations meet one of the following criteria qualify for the ERTC:
- Were partially or fully suspended due to COVID-19 government closure orders
- Experienced a significant decline in gross receipts in a calendar quarter comparable to the same quarter in 2019
Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.
The ERTC factors for the 2020 tax year include:
- The time period of 3/12/20 – 12/31/20
- Wages for each employee (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit
- Employers with less than 100 full time equivalent (FTE) employees can count all wages (but not wages covered by PPP funds/Federal Sick Leave benefits)
- Employers with more than 100 FTE (only the wages for the “furloughed” staff are applicable)
For the 2021 tax year, the following changes have been implemented:
- The credit increases up to 70% of $10,000 of wages per employee per quarter
- The FTE increases to 500 FTE
- The revenue reduction factor of 20% is measured in comparable quarters from 2021 and 2019. Also, there is now an option to use a previous quarter for your comparison. For example, for 1Q21, you could use the ratio of 4Q20 to 4Q19, if that yields a higher credit.
We encourage all employers to review the ERTC criteria and these recent changes to determine if you are eligible and to apply for the credit right away. As with many of the government programs established to help employers deal with the challenges of COVID-19, the process to apply can be difficult.
PBO Advisory Group is here to assist you with your ERTC questions and needs. Please contact Scott Palka for more information.
Scott Palka, CPA, MBA, CFA
Consulting CFO & Member
scott@pboadvisory.com
(858) 935-4847