The Consolidated Appropriations Act, 2021 (CAA) make several significant employer friendly changes to the Employee Retention Credit (ERC), introduced in the CARES Act back in 2020 for businesses maintaining payroll.

Specifically, it retroactively allows Paycheck Protection Program (PPP) loan borrowers to be eligible for the credit. Prospectively, it makes the “gross receipts test,” one of the two tests for determining eligibility for the credit, easier to pass, and significantly increases the credit’s potential dollar value. The CAA effectively creates two separate versions of the ERC, one for 2020 and another for 2021. Credit can be retroactively claimed via adjusted Forms 941-X for the applicable quarter in which qualified wages were paid up to 3 years after the original filing deadline. We’ll go back and review 2020 as well as help you prepare going forward  for 2021.

About Form 941

Form 941 is the Employer’s Quarterly Federal Tax Return or Claim for Refund. Use Form 941-X to correct errors on a Form 941 that you previously filed.

• Corrections to amounts reported on Form 941 for the credit for qualified sick and family leave wages.
• Corrections to amounts reported on Form 941 for the employee retention credit
• Corrections to the deferred amount of the employer share of social security tax.

Our Payroll team can review and refile payroll tax forms:

• Did you take the Employee Retention Credit (ERC) in 2020?
• Did you take advantage of all ERCs (2020 and moving forward)?
• CDS can review and amend forms that may have been done incorrectly.
  • Form 941
  • W-2s

• Do you have the correct reports for PPP Forgiveness and ERC to maximize loan forgiveness?
• An employer cannot use the same wages to calculate ERC and the credits for paid sick and family leave available under the FFCRA. Additional, an employer cannot request PPP loan forgiveness for these wages.
• You must repeat the testing process for each quarter.

We’re here to help. For a review of your payroll reports or for more information, contact Lori at (320) 214-2906.

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EMPLOYEE RETENTION TAX CREDIT

Under the first round of COVID-19 stimulus, private-sector businesses and nonprofits that were able to keep their workers on payroll between March 12, 2020, and Dec. 31, 2020, were eligible for refundable tax credits of as much as $5,000 per employee for the year. However, the second round of stimulus included in the Consolidations Appropriations Act of 2021 extends the employee retention tax credit (ERTC) through June 30, 2021, and increases the maximum credit amount to $14,000 per employee for the first two quarters of 2021.

WHO QUALIFIES FOR THE EMPLOYEE RETENTION TAX CREDIT?

Businesses qualifying for the original version of the ERTC must have continued to pay workers between March 12 and Dec. 31, 2020, despite 1) a full or partial suspension of operations for any quarter of 2020 due to a COVID-19 lockdown order, or 2) a significant decline in gross revenue during any quarter of 2020 compared to the same calendar quarter in 2019. The law distinguished a significant decline in revenue as one in which gross receipts during a quarter in 2020 are less than 50 percent of gross receipts for the same calendar quarter in 2019. Therefore, even essential businesses that voluntarily suspended operations or reduced staff hours could qualify for the ERTC provided they met the significant decline in gross receipts test.

Under the latest stimulus package, the ERTC is available beginning on Jan. 1, 2021, to a wider swath of businesses including those that are 1) fully or partially suspended by government-mandated business closures through the June 30, 2021, extension period, or 2) whose gross receipts for any quarter in 2021 are less than 80 percent gross receipts during the same quarter in 2019.