IRS Law Changes

The Employee Retention Tax Credit (ERTC) has been a lifeline for many businesses during the COVID-19 pandemic, providing financial relief to eligible employers to help them retain their employees. Since its introduction under the CARES Act in March 2020, the ERTC has undergone several changes and updates through subsequent legislation. As a business owner, it’s crucial to stay informed about these changes to ensure that you are taking full advantage of this valuable tax credit. In this blog, we’ll explore recent law changes to the ERTC and what they mean for your business.

Background on the ERTC

The ERTC is a tax credit designed to encourage businesses to retain employees during the COVID-19 pandemic. Eligible employers can claim a refundable tax credit against certain employment taxes, based on qualified wages paid to employees. The maximum credit amount is 70% of qualified wages, with a maximum credit of $5,000 per employee per quarter for 2021 and $7,000 per employee per quarter for 2020.

Recent Law Changes

Since its inception, the ERTC has undergone several changes through subsequent legislation. Here are some key updates to be aware of:

1. Extended Timeline: The ERTC was originally set to expire at the end of 2020, but has been extended multiple times. Under the Consolidated Appropriations Act, signed into law in December 2020, the ERTC was extended through June 30, 2021. The American Rescue Plan Act, signed into law in March 2021, further extended the ERTC through December 31, 2021.
2. Expanded Eligibility: The American Rescue Plan Act also expanded the eligibility criteria for the ERTC. Previously, businesses that received a Paycheck Protection Program (PPP) loan were not eligible for the ERTC. However, the law changed to allow businesses that received PPP loans to also claim the ERTC, with certain restrictions. This opens up the opportunity for more businesses to benefit from both programs.
3. Increased Credit Amount: The American Rescue Plan Act increased the maximum credit amount for the ERTC from 70% to 70% for 2021, with a maximum credit of $5,000 per employee per quarter, up from $10,000 in total wages per employee for 2020. This means that eligible employers can potentially claim a higher credit amount in 2021, providing even more financial relief.
4. Expanded Recovery Startup Businesses: The American Rescue Plan Act introduced a new category of businesses called “recovery startup businesses” that may be eligible for the ERTC. These are businesses that started operations after February 15, 2020, have average annual gross receipts of $1 million or less, and do not otherwise meet the eligibility requirements for the ERTC. Recovery startup businesses can claim the ERTC up to $50,000 per quarter, even if they have no employees, making this credit more accessible to newer businesses.
5. Advance Payments: The American Rescue Plan Act also introduced a provision that allows eligible employers with 500 or fewer employees to receive advance payments of the ERTC, instead of waiting to claim the credit on their quarterly employment tax returns. This can provide businesses with much-needed cash flow to help with their operations.

What These Changes Mean for Your Business

These recent law changes to the ERTC provide businesses with additional opportunities to claim this valuable tax credit and receive much-needed financial relief. If you previously did not qualify for the ERTC due to receiving a PPP loan, or if you are a recovery startup business, you may now be eligible to claim the credit. The increased credit amount, advance payment option, and extended timeline estimates 80% of businesses now qualify for the ERTC. Don’t wait, claim your money now!