When the coronavirus became a global pandemic in March of 2020, Congress responded with the CARES Act, one of several major pieces of legislation designed to bring COVID-19 relief to employers across the nation. Included in the act was the Employee Retention Credit (ERC), a fully refundable tax credit employers can use to help keep businesses open and employees paid.
The ERC originally applied to qualified wages paid from March 12, 2020, through December 31, 2020, but the credit was expanded in December 2020 under the Consolidated Appropriations Act, giving employers, including home health agencies, another opportunity to claim the credit through June 30, 2021.
“If a home health agency didn’t take advantage of the ERC in 2020, it might pay for them to take another look now,” says Malka Trump, Director of Compliance at payroll technology company Viventium.
Here is a look at the new ERC and four ways it’s changed in 2021.
Eligibility — triggered in 2021 upon a 20% gross receipts drop, down from 50%
The ERC is designed to help struggling employers experiencing “a significant decline in gross receipts.” A key change from last year to this year is the reduced percentage considered to be a “significant decline.”
In 2020, a significant decline was when an employer’s gross receipts declined by at least 50% as compared to the same quarter in 2019. The expanded ERC can now be used by employers whose gross receipts declined at least 20% compared to the same quarter year over year.
“The decreased eligibility threshold may affect a lot of home health agencies who remained in operation and may not have met the 50% decline but do meet the 20% requirement,” Trump says.
2019 employee count — from 100 full-time employees to 500
Together with the eligibility expansion, a dramatic increase to the employee count threshold used to determine available credits truly opens the door to broader access to the ERC. Under the original law, a company that had 100 or fewer full-time equivalent employees in 2019 could claim the credit in 2020 for any employee, whether that employee was still working or not, while companies with more than 100 employees could only access the credit for employees who were no longer working but were still being paid.
In 2021, instead of a threshold of 100 full-time equivalent employees, the threshold is 500 full-time equivalent employees in 2019.
“That’s obviously a huge expansion there, making this credit relevant to many more agencies that fall below that 500 employee threshold and whose employees have still been working,” Trump says.
Credit amount — from 50% of wages annually to 70% quarterly
The amount of the tax credit itself is also expanded. Last year’s version of the law offered a credit of 50% of each employee’s qualified wages, up to $10,000 in wages, resulting in a max credit of $5,000 per employee.
“That’s substantial,” Trump says, but it’s limited compared to 2021, which moves up to 70% of an employee’s qualified wages. In addition, the credit limit is a quarterly limit in 2021, rather than annual.
In other words, for an employee earning $10,000, that employer in 2020 could get a credit of $5,000, while for the same employee in 2021, the employer could potentially receive $7,000 of credits per quarter.
The ERC is scheduled to end after Q2 of 2021, but that’s still potentially $14,000 in credits per employee.
ERC can now be paired with PPP
One of the other significant pieces of legislation enacted in March of 2020 was the Paycheck Protection Program (PPP), where eligible employers affected by COVID-19 could apply for a loan through the Small Business Administration — a loan that could potentially be forgiven if funds are used for payroll and other qualified expenses.
Last year, the ERC and PPP programs were mutually exclusive, but under the Consolidated Appropriations Act, employers can now use both programs together.
“A lot of employers who previously had not even looked into the Employee Retention Credit because they went the PPP route might go back now and ask if this credit can help them further,” Trump says.
Not only that, but employers who received a PPP loan in 2020 might now be able to claim their ERC funds retroactively.
“We are still awaiting IRS guidance on how to go about doing that, but the potential is there for thousands of dollars in retroactive credit,” she says.
One caveat, she adds, is that employers who get a PPP loan and utilize the ERC cannot use the qualified employee retention credit wages as payroll expenses when applying for loan forgiveness. Some agencies that have that situation might want to do a cost-benefit analysis to see what’s more worth it, Trump says: PPP with ERC or PPP without ERC. The answer will be specific for each agency.
“We’re not out of COVID-19 yet, unfortunately, and a lot of agencies out there are still struggling,” Trump says. “There is assistance out there for them now, and there will likely be more coming down the pipe in the near future. It’s important to be familiar with the opportunities available.”
Payroll compliance is a team effort — as is understanding how to benefit from the new COVID-driven legislation. To learn more about how Viventium can help, visit Viventium.com.