Updates since the Consolidated Appropriations Act was passed:
- CAA removed restriction that prevents employers who obtained PPP loans from claiming the credit. They can now claim the credit on any eligible wages not used to support Paycheck Protection Program (PPP) loan forgiveness.
- Retention Credit has been extended to June 30, 2021 from Dec. 31, 2020.
- Credit has been increased to 70% of up to $10,000 of qualified wages paid per quarter in 2021.
- The gross receipts percentage is reduced from 50% to 20% and the qualifying wages test employee count raises from 100 to 500.
The Families First Coronavirus Response Act (FFCRA), provides small and midsize employers refundable tax credits that reimburse them for the cost of providing paid sick and family leave wages to their employees for leave related to COVID-19.
The FFCRA gives businesses with fewer than 500 employees funds to provide employees with paid sick and family and medical leave for reasons related to COVID-19, either for the employee’s own health needs or to care for family members. Workers may receive up to 80 hours of paid sick leave for their own health needs or to care for others. It also provides up to an additional ten weeks of paid family leave to care for a child whose school or place of care is closed or child care provider is closed or unavailable due to COVID-19 precautions. The FFCRA covers the costs of this paid leave by providing small businesses with refundable tax credits. Certain self-employed individuals in similar circumstances are entitled to similar credits.
IRS has provided more information on the paid leave requirements specific to small and midsize businesses at the link below.
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Background:
The Employee Retention Credit is a refundable tax credit for 50% of up to $10,000 in wages paid by an employer whose business has been financially impacted by COVID-19. This credit was created by the CARES Act. This credit applies to wages paid after March 12, 2020, and before January 1, 2021. Self-employed individuals are not eligible for this credit.
The credit is available to employers regardless of size, tax-exempt 501(c) organizations when business operations are fully or partially suspended by government order due to COVID-19, or to employer’s whose gross receipts are 50% less than the comparable quarter in 2019.
Qualifying wages are based on the average number of a business’s employees in 2019. If the employer had 100 or fewer employees the credit is based on wages paid to all employees, regardless if they worked or not. If the employer had more than 100 employees, then the credit is allowed only for wages paid to employees who did not work.
Employers can immediately reduce required deposits of Social Security payroll taxes that have been withheld from employees’ wages. If the tax credit exceeds the amount of taxes that the employer would have deposited (calculated quarterly), the employer can request a payment for the difference.
An employer may claim tax credits for both the Employee Retention Credit and for paid leave and sick leave tax credits created by the Families First Coronavirus Response Act (FFCRA) — but not for the same wages paid.
An employer may not claim Employee Retention Credits if it receives a Small Business Interruption Loan under the Paycheck Protection Program.