The Employee Retention Credit (ERC) has been a hot topic of discussion the last couple of months. The newest update related to the ERC is that the House of Representatives has recently voted to extend the credit through December 2021. Currently it is scheduled to expire at the end of June. This extension comes as part of the new stimulus bill, known as the American Rescue Plan, that is currently making its way through Congress.
The ERC provides a way for businesses to receive a refund for a certain percentage of wages paid to employees to help enable them to continue to pay their employees and other operating expenses during these tough times. The credit is claimed on the quarterly Form 941 payroll tax report that is filed with the Internal Revenue Service. There are certain criteria that must be met to claim the credit and those can be reassessed each quarter to determine eligibility. The main criteria for claiming the credit for any quarter in 2021 is that the business had a drop in gross revenues of at least 20% when compared to the same quarter in 2019. If you are interested in estimating the benefit your business could receive from claiming the Employee Retention Tax Credit for 2021, you can use this ERC Credit Calculator to get a rough idea of the credit amount you could claim.
Click here to read our article about the ERC from our January newsletter which details changes that make the credit available to businesses that took out a PPP loan for the current year and retroactively to quarters in 2020. The IRS recently released Notice 2021-20 that contains a list of 71 frequently asked questions related to claiming the credit for 2020. Unfortunately, at this time there has been no additional guidance issued to help employers navigate claiming the credit for 2021. Hopefully some guidance for 2021 will be issued as we get closer to the first quarter payroll tax filing deadline at the end of April.