Many businesses have had to shut down or reduce operations during the COVID-19 pandemic, causing widespread furloughs and layoffs. Fortunately, employers that have managed to keep workers on payroll may be eligible for a refundable employee retention credit. Three laws have created, extended and enhanced the credit.
The CARES Act created the employee retention credit in March of 2020. The credit originally:
- Equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter,
- Was subject to an overall wage cap of $10,000 per eligible employee, and
- Was available to eligible large and small employers.
The credit covered wages paid from March 13, 2020, through Dec. 31, 2020.
The Consolidated Appropriations Act (CAA), signed into law in December of 2020, extended the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021. Then on March 11, 2021, the American Rescue Plan Act (ARPA) extended it again through Dec. 31, 2021.
Additionally, the CAA increased the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter. And it increased the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules). Because of the ARPA extension, these higher wage ceilings now apply to all four quarters of 2021.
Substantial Tax Savings
Additional rules and limits apply to the employee retention credit, and these are just some of the changes made to it. But the potential tax savings can be substantial. Contact us for more information about this tax saving opportunity.