How Changes to the Employee Retention Credit Help Businesses

The most recent stimulus package (Consolidated Appropriations Act of 2021) signed into law on December 27, 2020, provides more relief to employers than ever before. As part of the bill, changes to the Employee Retention Credit (ERC) have greatly expanded its value and availability to businesses in the U.S. The IRS has released guidance explaining how and when businesses can claim the ERC, even if they are receiving money through the Paycheck Protection Program (PPP).

The ERC was initially established as part of the CARES Act to benefit businesses that continue to pay their employees during the pandemic. Originally, employers had to choose if they wanted to pursue either the PPP loan or the ERC – you could not take both.

Effective January 1, 2021, some of the highlights of changes to the ERC include:

• Extension until July 1, 2021
• Even if you previously took PPP, you can now also use ERC
• Easier qualification requirements
• Significant increases in available credit

According to the new legislation, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. For each calendar quarter in 2021, there is a qualified wage limit of $10,000 per employee. Therefore, employers can claim a maximum credit of up to $7,000 per employee per quarter, for a total of $14,000 in 2021. Previously, the rules allowed $5,000 per employee per year.

Also effective January 1, businesses that already received a PPP loan can also claim the ERC retroactively, as long as the same wages are not used for both programs.

Read the FAQs from the IRS for more information.

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To keep track of tax credits and other legislative changes impacting your payroll, employers need a payroll and HR solution that can accommodate changes and easily apply them to their employee data. isolved, GTM’s HCM platform, can do just that – and much more. You’ll reduce errors, increase productivity, and save time.

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