The Consolidated Appropriations Act of 2021 (Act), signed into law on December 27, 2020, contains significant enhancements and improvements to the Employee Retention Credit (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. 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 that experienced a significant reduction in gross receipts.
Employers may use ERCs to offset federal payroll tax deposits, including the employee FICA and income tax withholding components of the employer’s federal payroll tax deposits.
ERC for 2020
The Act makes the following retroactive changes to the ERC, which apply during the period March 13, 2020 through December 31, 2020:
ERC for 2021 (January 1 – June 30, 2021)
In addition to the retroactive changes listed above, the following changes to the ERC apply from January 1 to June 30, 2021:
Increased Credit Amount
Broadened Eligibility Requirements
Determination of Qualified Wages
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 so professional advice may be needed.