On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) extending and expanding the employee retention credit (“ERC”), originally implemented as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and extended by the Consolidated Appropriations Act of 2021 (“CAA”). The ERC is a refundable credit applied against payroll taxes based on certain “qualified wages” not exceeding 70% of up to $10,000 per employee, per quarter, paid by an eligible employer.
In the original 2020 CARES Act, the ERC was capped at 50% of up to $10,000 in wages paid per employee, per year (or $5,000 per employee). The CAA increased the credit to 70% of up to $10,000 in wages paid per employee (or $7,000 per employee) per quarter (rather than per year) and extended the credit to qualified wages paid through June 30, 2021. ERC, up to $33,000 per employee (up to $5,000 for 2020 and up to $28,000 for 2021), is available to employers (i) whose operations were fully or partially suspended as a result of COVID-19 governmental shutdown orders, or (ii) who experienced a severe decline in gross receipts. ARPA extends the ERC through December 31, 2021.
ARPA added a third category of eligibility for the ERC to any “recovery startup business” (“RSB”). An RSB is an employer that does not qualify under either of the first two eligibility criteria, who commenced a trade or business after February 15, 2020, and whose average annual gross receipts do not exceed $1 million. An RSB is limited to a total ERC of $50,000 per quarter for all employees.
Under ARPA, qualified wages are generally limited to $10,000 per employee per quarter. However, ARPA also modified what constitutes qualified wages for a “severely financially distressed” employer that experiences a greater than 90% decline in gross receipts. For such employers, qualified wages include any wages paid during the calendar quarter.
The expansion and extension of ERC provides businesses additional financial assistance to keep doors open as the economic fallout and restrictions from the pandemic remain. These businesses now include certain small businesses starting after February 15, 2020 who have previously struggled to claim other federal COVID-19 related assistance.
If you believe you qualify for the ERC under the general guidelines established by the CARES Act, or as an RSB or a severely financially distressed employer under ARPA and you have not claimed the ERC, please give the attorneys at Rosenblatt Law Firm a call for assistance.