Employers that received a PPP loan and were previously prohibited from claiming the Employee Retention Credit (ERC) may now retroactively claim the ERC for 2020. Employers may use ERCs to offset federal payroll tax deposits up to $5,000 per employee in 2020 and up to $14,000 per employee in 2021.

The Consolidated Appropriations Act of 2021 (Act), signed into law on December 27, 2020, contains significant enhancements and improvements to the ERC. The ERC, which was created by the CARES Act on March 27, 2020, is designed to encourage employers (including tax-exempt entities) to keep employees on their payroll and continue providing health benefits during the coronavirus pandemic. While there has been significant discussion regarding PPP 2, the ERC could, in certain instances, be equally or more beneficial to an employer. The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19-related governmental order or who experienced a significant reduction in gross receipts.

The Act makes the following retroactive changes to the ERC, which apply during the period March 13, 2020 through December 31, 2020:

  • Employers that received PPP loans may qualify for the ERC with respect to wages that are not paid with proceeds from a forgiven PPP loan.
  • Group health care expenses are considered “qualified wages” even when no other wages are paid to the employee.

The Act may provide significant opportunities for your company. However, the interplay between the Act, the CARES Act and various Internal Revenue Code sections is nuanced and complicated. Please consult with your BMSS professional to learn more about this credit.

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