Employee Retention Tax Credit Updated and Extended (Clayton & McKervey)

January 21, 2021 - Clayton & McKervey PC

This is a thought leadership article by PrimeGlobal member firm Clayton & McKervey on employee retention tax credit updates and extensions. 

The most recent COVID-19 Stimulus Package extended and made some key adjustments to the Employee Retention Credit (ERC) making it likely more businesses will qualify for the credit.  Below are some key changes:

  • Extended the credit availability through July 1, 2021 (originally expired Dec. 31, 2020).
  • This legislation now allows a company that received a Paycheck Protection Program loan to also claim the ERC, however, wages paid for with PPP funds that have been forgiven are not qualified wages for purposes of the credit. Companies that previously have not applied for the credit may be able to amend previously filed payroll tax returns.
  • Effective Jan 1, 2021: the credit amount is increased to 70% of qualified wages. Wages are capped at $10,000 per employee per quarter, so the maximum credit for 2021 will be $14,000 per employee.  In 2020 the credit was capped at $5,000 total per employee.
  • Effective Jan 1, 2021: businesses are eligible to claim the credit if gross receipts are less than 80% of gross receipts for the same quarter in 2019.  This is reduced from the 50% reduction requirement for 2020.

  • Effective Jan. 1, 2021: companies with 500 or fewer employees may claim the credit even if employees are working. Prior to the updated legislation, this threshold was 100 employees.  It should be noted affiliated companies must be aggregated when calculating this 500 employee threshold.
  • The legislation provides for an advance payment of the credit for companies with 500 or fewer employees, based on 70% of the average quarterly payroll for the same quarter in 2019 so that the credit may be monetized before the wages are paid. Further guidance is expected on this piece of legislation.

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Clayton & McKervey PC

Headquartered near the international border of the U.S. and Canada, Clayton & McKervey is a Detroit-based, full-service accounting and business advisory firm focused on global business. The firm’s clientele includes closely held, middle-market, growth-oriented companies. Since 1953, Clayton & McKervey has created a strong reputation, both domestically and internationally, with four types of clients, U.S. entities with operations in other countries, foreign entities expanding to the U.S., businesses with international growth plans and clients in need of transfer pricing service.

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