July 19, 2021

Tap into Savings – 2021 Employee Retention Credit

The economic conditions created by the COVID-19 pandemic have been easing in recent months due to the widespread distribution of the vaccine. Rolled-back restrictions have restored consumer confidence and increased demand. It was reported that the state unemployment rate for June had fallen to 4%, sharply lower than the 5.9% national average. Despite this, many Atlanta businesses are still struggling to overcome a year of lost sales and lackluster financials. Unfortunately, the recent closure of the Paycheck Protection Program (PPP) and Restaurant Revitalization Fund (RRF) has made it even more difficult. Although it may seem options are running out, it is important not to forget about the Employee Retention Tax Credit (ERC). This payroll-based tax incentive provides a valuable tax credit for retaining employees under certain conditions. Even if a company did not qualify in 2020, the regulations were changed for 2021 expanding eligibility and offering greater savings. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

2021 Employee Retention Credit Update

There were several important changes made to the ERC when the Consolidated Appropriations Act, 2021, was passed at the end of last year. Not only was the credit extended through July 31, 2021 (and later extended through the end of the year), but several other favorable changes were made, including:

• Expanded Eligibility – New for 2021, certain nonprofit organizations and governmental entities can now qualify to claim the credit. Any nonprofit organized as a 501(c)(1) or a 501(a) and any governmental entity that is a college, university, or provides health and medical care can also qualify. Under new regulations, a college or university is defined as an institution providing higher education and a medical facility as one whose primary function is to provide ongoing healthcare treatment. Note that all other federal, state, and local government organizations are ineligible to claim the credit.
• Decline in Gross Receipts – Under prior regulations, a company could only qualify if the decline in gross receipts in 2020 were less than 50% of gross receipts for the corresponding 2019 quarter. For 2021, any business with a calendar quarter showing a decline in gross receipts less than 80% is now able to claim the credit. Concurrently, a business is also allowed to use an alternate calendar quarter when determining eligibility. In other words, it is permitted to compare the gross receipts for the immediately preceding calendar with those for the corresponding time in 2019.
• Increased Maximum Credit Amount – The maximum credit amount was increased to 70% of qualified wages, including qualified health plan expenses, for the first and second quarters of 2021. In other words, the new maximum credit amount for qualified wages is $7,000 per employee per quarter, a total of $14,000. This means if a business has 10 eligible employees, they can receive a $140,000 credit for the first half of the year. This is a substantially higher amount than was previously available.
• Qualified Wages – Under prior regulations, the definition of qualified wages was prohibitive for large companies (more than 100 employees) because it did not include wages paid to staff that was working. Unfortunately, it only covered wages paid to employees that were not able to work due to COVID-19 restrictions. Small employers (less than 100 employees) were not subject to the same rules. For 2021, the definition of a small employer was changed to mean businesses with less than 500 employees and large employers with more than 500 employees. This change expands the number of companies that can now add the qualified wages for employees that did provide services during a forced shutdown.

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Although many of the popular SBA programs are no longer available it does not mean Atlanta businesses are out of options. The changes to the Employee Retention Tax Credit offer a compelling savings opportunity for those who qualify. If you have questions or need assistance claiming the credit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.