Tag Archives: Employee Retention Credit

The American Rescue Plan Act of 2021: What’s in it for Employers?

*Save the Date! Complimentary webcast on March 23rd at noon CST: American Rescue Plan: What Employers Must Know Now

Contributed by Rebecca Bush and Kelly Haab-Tallitsch, March 11, 2021

Almost one year after the enactment of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and with the second extension of pandemic unemployment assistance about to expire for millions of workers on March 14, 2021, the American Rescue Plan Act of 2021 (the “Act”) was signed into law by President Biden on Thursday afternoon, March 11, 2021. 

The estimated cost of the Act is $1.9 Trillion, with $1,400 Recovery Rebate checks for each qualifying individual, the extension of supplemental unemployment benefits through September 6, 2021, as well as billions in new or additional relief for various industries, such as education, transportation and infrastructure, aviation/airlines, health care, shuttered venues, restaurants, and state and local governments.

Several provisions of the Act are potentially available for employers of various sizes across all industries. Some key non-industry specific provisions are set forth below.

Premium Assistance for Cobra Continuation Coverage for Individuals and Their Families

Remember the COBRA Subsidy implemented years ago where individuals had 85% of their premiums covered? The Act invokes similar assistance for individuals. However, this time the amount covered for individuals is set at 100%. It generally applies to premiums due related to coverage periods from April 1, 2021 through September 30, 2021. Employers will be required to notify employees about the availability of the premium assistance and the expiration date. The Secretary of Labor is required to produce model notices, with the initial model notice of availability to be provided within 30 days of the Act’s enactment. The 100% premium subsidy will be reimbursed to employers through their quarterly payroll tax returns.

Extension of Employee Retention Credit

The Employee Retention Credit was recently extended and amended as part of the Consolidated Appropriations Act of 2021 (enacted during the last week of December 2020). The Act further extends the availability of the credit for wages paid through December 31, 2021.  As a reminder, we explained the prior expansion to the Employee Retention Credit previously.

Extension of Tax Credits ONLY for Paid Leave under the FFCRA

In the last round of stimulus legislation, the tax credit for paid leave under the Families First Coronavirus and Response Act (“FFCRA”) was extended through March 30, 2021.  However, the extension was not mandatory and maximum leave allowances were not reset, meaning an individual that had already exhausted available amounts in 2020 was not entitled to further time off regardless of whether an employer continued to make the leave available on a voluntary basis. We previously explained the extension in a recent blog post.

Employers that are contemplating, or already, providing paid time off for employees to obtain the vaccine, now potentially have assistance funding that leave. The American Rescue Plan extends the availability of the tax credits for paid sick or family leave through September 30, 2021, and the maximum amount of tax credits that an employer can claim for each employee will reset on April 1, 2021.  This reset allows an employee who exhausts the maximum leave through March 31, 2021 to be able to utilize additional FFCRA leave on April 1, 2021 through September 30, 2021, provided the employer continues to voluntarily allow the use of FFRCA leave. In addition, two new permitted reasons for paid sick leave are added where: (1) an “…employee is seeking or awaiting the results of a diagnostic test, for, or a medical diagnosis of, COVID 19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis;” and (2) “the employee is obtaining immunization related to COVID-19 or recovery from any injury, disability, illness, or condition related to such immunization…”  

Optional Expansion of Limits under Dependent Care Flexible Spending Account Plans

Employers that offer dependent care flexible spending account plans may increase the maximum deferrals under the plan to slightly more than double the normal deferral limit. This is for the 2021 plan year only. This translates to a maximum deferral for a married couple in the amount of $10,500 and $5,250 for an individual.

For further information, register to attend SmithAmundsen’s complimentary webcast on March 23rd at noon CST: American Rescue Plan: What Employers Must Know Now

Employee Retention Credit NOW Available for Many Businesses Financially Impacted by COVID-19

Contributed by Meredith Murphy and Robert Jackson, April 1, 2020

dollar bills in hand

On March 31, 2020, the Treasury Department and the Internal Revenue Service launched the Employee Retention Credit, designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

How to determine if your business qualifies for the Employee Retention Credit:

The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: state and local governments and their instrumentalities and small businesses which take Small Business Loans. If an employer takes an SBA loan under the CARES Act (for example, the Paycheck Protection Program, Economic Injury Disaster Loans, and other SBA loans) the employer is not eligible for the retention credit.

Qualifying employers must fall into one of two categories:

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. The employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019 they no longer qualify after the end of that quarter.

These measures are calculated each calendar quarter.

Calculating your credit:

The amount of the credit is 50 percent of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before January 1, 2021 are eligible for the credit. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.

Determining which wages qualify:

Qualifying wages are based on the average number of a business’s employees in 2019.

  • For employers with less than 100 employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.
  • Employers with more than 100 employees:  If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

Receiving your credit (perhaps the most important step):

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter.

If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

Form 7200 can be found on the IRS website.  

Instructions for Form 7200 can also be found on the IRS website.   

It will be critically important that you determine if you will receive more aid using the Employee Retention Credit or using the Paycheck Protection Program, Economic Injury Disaster Loans and Loan Advance, SBA Debt Relief, and SBA Express Bridge Loans. You can learn more about those programs on the U.S. Small Business Administration website.