While the additional PPP funding and stimulus checks garnered most of the attention of the stimulus package signed by President Trump on December 27, 2020, the package also enhanced the Employee Retention Tax Credit which was part of the CARES Act passed in 2020.
Below is a comparison of the Employee Retention Tax Credit.
Covered Period
Original: After March 12, 2020, and before Jan. 1, 2021.
Updated: After March 12, 2020, and before July 1, 2021 (i.e. extending availability of the credit to the first two quarters of 2021).
Credit Calculation
Original: 50% of the qualified wages paid to the employee.
Updated: Effective Jan. 1, 2021, 70% of the qualified wages paid to the employee.
Maximum Credit Amount
Original: $5,000 for all qualified wages paid during 2020.
Updated: Effective Jan. 1, 2021, the maximum credit is $7,000 for each of the first two quarters of 2021, for a maximum credit of $14,000 per employee.
Eligibility
Original: Businesses were eligible if 1) operations are either fully or partially suspended by a COVID-19 lockdown order, or 2) for any quarter in 2020, if gross receipts declined by more than 50% compared to the same quarter in 2019.
Updated: Effective January 1, 2021, businesses are eligible if 1) operations are either fully or partially suspended by a COVID-19 lockdown order, or 2) for any quarter in 2021, if gross receipts declined by more than 20% compared to the same quarter in 2019.
Interaction with PPP Loan
Original: A company that received a Paycheck Protection Program (PPP) loan was not eligible to claim the employee retention credit.
Updated: A company that received a PPP loan may also claim the employee retention tax credit. However, a credit may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven.
Advance Payments
Original: No provision to monetize the credit before qualified wages were paid.
Updated: The Treasury Department will draft guidance to allow an advance payment of the credit for companies with 500 or fewer employees, based on 70% of average quarterly payroll for the same quarter in 2019. In other words, such companies may monetize the credit before the wages are paid. If the amount of the actual credit determined at the end of the quarter is less than the amount of the advance payment, the company will need to repay the excess to the government.