Previously, in 2020, anyone who received Payroll Protection Program (PPP) funding did not qualify for the Employee Retention Tax Credit. However, all of that changed in late December as part of the Consolidated Appropriations Act. Now, providing you meet certain criteria, any wages not utilized as part of the covered expenses under the PPP may now qualify for these credits. There is uncertainty as to how these provisions interact with one another, but we are continuing to hear more day by day.
For 2020, eligibility begins in the quarter when your business must meet one of the following criteria:
- Operations were fully or partially suspended by a government order in at least one quarter in 2020; or
- Gross receipts dropped by more than 50% compared to the same quarter in 2019.
Note : Other eligibility tests may allow you to qualify, but these are a little more difficult to determine, such as impact on suppliers or customers of an essential business or other proclamations, etc.
The employer may then claim a credit of 50% of qualified wages for 2020 with a maximum credit of $5,000 per employee for “qualified wages” from March 12, 20 20 through December 31, 2020.
- If qualified under the operations criteria, qualified wages are those wages paid to employees during the period of shutdown.
- If qualified under the drop in gross receipts, qualified wages include all wages paid to employees during the eligible quarter.
- In addition, group health plan expenses may be treated as qualified wages.
- Wages for paid sick and family leave credits under Families First Coronavirus Response Act (FFCRA) do not qualify.
- Work Opportunity Tax Credit (WOTC) and other credit wages do not count – cannot double benefit.
These rules are complicated and have additional tests related to the number of full-time equivalent employees during 2019. There are several enhancements as well. We are dissecting the 5,500-page bill daily, so please bear with us.
These refundable credits for 2020 should be claimed on an amended 941 or your fourth quarter 941 form, which is due in January 2021. There is some confusion as to the proper filings at this time, but we are sure clarification will be forthcoming in the very near future.
There are also credits available for wages paid from 1/1/2021 through 6/30/21, which is even more generous for some taxpayers. These wages have different percentage tests and criteria. These will be discussed in a later newsletter.
If you believe you may qualify for these credits, please contact us so that we can help you navigate this new law.