NEW LAW: Claim Employee Retention Credit for wages not treated as payroll costs.

Employee Retention Credit & PPP

The newly implemented employee retention credit has been crafted in an aimed attempt to make it easier for businesses to keep their employees on payroll despite the difficulties companies may have faced during the midst of the COVID-19 pandemic. The Internal Revenue Service strongly encourages employers to utilize this recently devised policy. 

Several alterations in regards to employee retention tax credits were made on December 27, 2020 when the Taxpayer Certainty and Disaster Tax Relief Act of 2020 administered the Coronavirus Aid, Relief, and Economic Security Act. The Employee Retention Credit has been lengthened to June 30, 2021. 

Now, certain employers are eligible to request a refundable tax credit which would be against the employer share of the Social Security tax. The credit is equivalent to 70% of qualified wages paid to employees in between December 31, 2020 to June 30, 2021. Wages are restricted to $10,000 for each employee per quarter of 2021. 

The Employee Retention Credit is accessible to employers for the first two quarters of 2021. Employers with approximately 500 or less full-time employees are permitted to plea an advanced credit payment on Form 7200. 

Starting January 1, 2021, trade and business employers are considered eligible if during January 1, 2021 to June 30, 2021 they have:

• Experienced suspension of their company due to government orders related to COVID-19 or,
• Had a decline in gross receipts during a 2021 calendar quarter. The gross receipts must be less than 80% of the same calendar quarter of 2019. 

Trade and business employers which were not in operation during 2019 are authorized to use a 2020 calendar quarter to determine any gross receipts decline. 

Effective January 1, 2021, qualified wages for an employer with more than 500 full-time workers in 2019 is defined as:

• The wages paid to employees who were not conducting services due to business suspension or gross receipts decline. 

While qualified wages for an employer with less than 500 full-time workers in 2019 is defined as:

• The wages paid to every employee during the time of business suspension or during the period of gross receipt decline. These wages were paid regardless if employees were conducting services or not. 

The law now permits employers that accepted the Paycheck Protection Program’s loans to claim Employee Retention Credit for wages not treated as payroll costs.