Employee Retention Credit - FTEs and Partial Shutdown Rules
Updated as of 1:00 p.m. on April 6, 2021
The Consolidated Appropriations Act, 2021 ("the Act") was signed into law at the end of December. The Act includes significant enhancements to the Employee Retention Tax Credit ("ERTC", "the credit") and extends the credit through June 30, 2021. The American Rescue Plan Act of 2021, passed March 11, 2021, now extends the credit through December 31, 2021.
The ERTC was originally enacted by the CARES Act, with one of the main caveats being that employers were ineligible for the credit if they participated in the Paycheck Protection Program ("PPP").
The Act allows taxpayers who took PPP loans and satisfy certain criteria outlined below to potentially claim a credit on wages paid retroactively to the original CARES Act date of March 13, 2020. The credit can be taken on qualifying wages that were not paid with forgiven (or forgivable) PPP funds.
The ERTC is a fully refundable payroll tax credit for employers that meet one of the two following conditions:
- Business operations were fully or partially suspended due to a government order limiting business operations
- The business had a reduction in gross receipts during an individual calendar quarter compared to the same calendar quarter in 2019
For the 2020 credit, the reduction in gross receipts test is met with a quarterly decrease of more than 50%. The maximum credit is $5,000 per employee for the year.
For the 2021 credit, the reduction in gross receipts test is met with a quarterly decrease of more than 20%. The maximum credit is $28,000 per employee for 2021.
The calculation and eligibility for the credit can also be impacted by the number of full-time employees.
Please reach out to your MHCS advisor if you have any questions about the credit or think your business may be eligible. We will continue to provide additional information as it becomes available.