The Consolidated Appropriations Act, 2021 is a bipartisan bill that was passed by both houses of Congress on December 21, 2020. It was the first bill to address issues caused by the COVID-19 pandemic since April 2020. President Trump signed it into law on December 27, 2020.
There are many features to this law. This article is going to focus on updates, changes beginning January 1, 2021, and the extension through June 30, 2021 of the Employee Retention Credit.
The key change retroactive to March 12, 2020 that was made to the Employee Retention Credit is that employers who took Payroll Protection Program (PPP) loans are now eligible to take the Employment Retention Credit. Employers who receive or have received a PPP loan will now qualify for the credit with respect to wages that are not paid with forgiven PPP loan funds.
One item that did not change is the eligibility requirement. Eligible businesses are those that were either fully or partially suspended due to a COVID-19 governmental order, and only while that order was in place, or whose gross receipts for a calendar quarter beginning after December 31, 2019 have reduced gross receipts compared to the same quarter of the prior year.
Beginning January 1, 2021, eligibility for the credit is allowed if 2021 gross receipts are less than 80% of the same quarter 2019. The rule for 2020 was 50% of the same quarter in 2019 until the END of the first quarter in which gross receipts exceed 80% of the same quarter in 2019.
If a business did not exist in 2019, they are not eligible to take the credit. A business may use a comparable quarter to meet the 80% threshold. At this time, the IRS has not provided guidance on how a comparable quarter is defined. The Consolidated Appropriations Act, 2021 extends the timeframe in which eligible wages can be paid to July 1, 2021 and expands the credit as follows:
For 2020, the credit was 50% of qualified wages paid to an employee, plus the cost of providing health benefits. Beginning January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages.
For 2020, the credit was limited to qualified wages of $10,000 for the year. Beginning January 1, 2021, the limit of qualified wages for the credit changes from $10,000 per year to $10,000 per quarter for the first two quarter of 2021. The 2021 credit is available even if the credit was taken for an employee in 2020.
The original CARES Act set a limit for companies with more than 100 employees regarding the credit. A company with more than 100 employees could not take the credit for an employee performing services for the company (regardless of whether the employee is teleworking or working at the company. Even if at reduced capacity or less hours due to reduction of business).
Beginning January 1, 2021, a company with 500 or less employees are eligible to take the credit. This increase permits employers with 500 or fewer employees to take the credit for wages paid to employees who have continued to perform services (provided they meet other requirements).
NOTE: When calculating the 500-employee threshold, the employees of all affiliated companies sharing more than 50% common ownership are aggregated.
Beginning January 1, 2021, certain Federal, state, and local governmental agencies will be allowed to take the Employee Retention Credit. Some of the entities eligible are as follows:
- Public Colleges and Universities
- Organizations with the principal purpose of providing medical or hospital care
- Certain Federal Instrumentalities, such as Federal Credit Unions
For nonprofit organizations, the Consolidated Appropriations Act, 2021 provided a definition for gross receipts by referencing Section 6033 of the Internal Revenue Code. Gross receipts include the following:
- Dues or assessments
- Unrelated business activities
- Sale of assets
- Investment income
There are still many questions to be answered about updated forms and filing requirements. We, at ADKF, will be with you every step of the way regarding these changes and any other accounting needs you may have. If you have any questions on how we may help, please don’t hesitate to call our office at (210) 829-1300.