Employee Retention Credit Expanded: What You Need to Know

The second stimulus package, officially known as the Consolidated Appropriations Act of 2021 (Act), which was signed into law on December 27, 2020, provided a myriad of COVID-19 relief and other aid. Some of the relief included the expansion and improvement of the Employee Retention Credit (ERC). The ERC, implemented through the CARES Act, is a refundable tax credit for wages and health coverage for employers whose businesses were affected by circumstances related to COVID-19. It was created to encourage employers to keep staff and continue offering health benefits despite pandemic disruptions

While the original ERC provided some relief for employers, the latest enhancement provides even more assistance that may affect your company.

Here are some highlights you should know:

• The ERC is now available to paycheck protection program (PPP) loan recipients. Employers who were previously unable to apply for an ERC because of PPP status can now apply.

• You may be able to claim the credit for prior quarters in 2020 even if the company was not initially eligible or did not claim the credits on originally filed Form 941s. Act quickly! The credits for all four quarters can be claimed on the fourth quarter Form 941 due January 31.

• Group health care expense can be counted as “qualified expenses” even if no other wages were paid to an employee.

• Qualifying for the credit is easier than originally specified in the CARES Act.

• Expenses used toward the ERC cannot also be used under PPP loan forgiveness.

If you have questions about the expanded ERC guidelines and how they may affect your situation, contact your tax advisor today. The professionals at Rodefer Moss can help you maximize your tax benefits while remaining compliant with the latest tax law.