While the Payment Protection Plan (PPP) and the Economic Injury Disaster Loans (EIDL) have stolen the media spotlight, other financial incentives for employers to retain employees during the ongoing pandemic abound.  In the recently enacted 2021 American Rescue Plan Act, one such incentive, the employment retention credit, has received a new lease on life.  First, a brief history about the credit during the pandemic.

Under the initial COVID-19 stimulus act, the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES Act) signed into law a mere 12 months ago, eligible businesses could claim a refundable tax credit against the employer’s share of Social Security taxes equal to 50% of the qualified wages they paid employees. The credit only applied to wages paid after March 12, 2020 and before January 1, 2021 and was limited to $10,000 in qualified wages per employee.  The CARES Act, as interpreted by the IRS, also defined eligible employers as those whose operations were fully or partially suspended during any calendar quarter in 2020 due to orders from an appropriate governmental authority due to COVID-19, or who experienced a significant decline in gross receipts during the calendar quarter.  A significant decline meant significant: More than 50% decline in quarterly gross receipts in 2020 when compared to the same quarter in 2019.

As part of the second COVID-19 stimulus act, the $900 million Taxpayer Certainty and Disaster Tax Relief Act signed into law 3 months ago, several changes were made to the employee retention credits, including extending the credit for 6 months through June 30, 2021 and increasing the percent of qualified wages eligible for the credit to 70%.

As part of the third and most recent COVID-19 stimulus act, the $1.9 trillion American Rescue Plan (ARPA) signed into law earlier this month, the employee retention credit was extended and modified again.  Under ARPA, eligible employers can continue to claim a refundable tax credit against the employer share of Social Security taxes equal to 70% of qualified wages paid to employees through December 31, 2021.  Qualified wages are limited to $10,000 per employee per calendar quarter.  An eligible employer under ARPA  is one whose operations were fully or partially suspended due to orders from an appropriate governmental authority due to COVID-19, or, more significantly and less onerously than in the CARES Act, who experienced a decline of more than 20% in gross receipts during any calendar quarter in 2021 when compared to the same quarter in 2019.

Many restrictions apply to who may use the employee retention credit and how it may be used.  Qualified wages are defined differently for large (over 500 employees) and “non-large” employers. Wages taken into account by PPP or other federal stimulus packages may not qualify for purposes of calculating the retention credit.  Recovery startup businesses and severely financially distressed employers are accorded special treatment under ARPA.

ARPA provides a significant amount of monetary and tax stimulus for a number of qualified employers. It is always prudent to consult with your tax advisers, financial officers, and legal counsel in determining which part, if any, of the various stimulus acts apply to your business.  The attorneys in our Austin and Dallas offices are available to answer any questions you may have.

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