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Employee Retention Credit Expanded by the American Rescue Plan Act

Eligible employers include:

  • The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter. 
  • The employer’s gross receipts for 2021 are below 80% of the comparable quarter in 2019.

 

The amount of wages per employee is limited to $10,000 for each quarter of 2021.

 

The Act defines a Recovery Startup Business which is a business that started after February 15, 2020 and averages less than $1,000,000 of gross receipts. These businesses are not required to meet the other provisions such as a governmental shut down or a decline in gross receipts that is typically required to claim the ERC. The employer qualifies for a maximum credit of $50,000 for each of the third and fourth quarters of 2021.

 

The Act defines a Severely Financially Distressed Employer, which is a business who has experienced a gross receipts reduction of more than 90% compared to the same quarter in 2019. These employers would be eligible to take the ERC for all wages paid during the applicable quarter, even if the number of employees exceeds the 500 employee limit. These rules apply for the third and fourth quarters of 2021.

 

Businesses who received a Payroll Protection Program loan, Shuttered Venue Assistance, or Restaurant Revitalization Grants can take the Employer Retention Credit, as long as, they do not use the same wages as were used for these other forms of assistance.

 

The Act also extends the statute of limitations on the payroll tax returns associated with these credits from three years to five years.

 

Author: Carrie L. Hindmon, CPA, CSEP

 

Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough analysis of specific issues, nor a substitute for a formal opinion, nor was it written to be used to avoid tax related penalties.

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