BRAC’s April 9 COVID Brief: New guidance on the lucrative Employee Retention Tax Credit

After being updated and expanded by Congress twice, The Employee Retention Tax Credit (ERTC) is getting increased attention as a beneficial financial tool for businesses that were affected by the pandemic. For employers, the IRS recently released updated guidance that allows refundable credits for the first two quarters of 2021, and the newly passed American Rescue Plan Act expanded eligibility through the third and fourth quarters of 2021.  Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Under the American Rescue Plan, the ERTC is also available to eligible employers for wages paid during the third and fourth quarters of 2021, guidance on which is forthcoming.

Under the ERTC, qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERTC available is $7,000 per employee per calendar quarter, for a total of $14,000 per employee for the first two calendar quarters of 2021.

Employers can access the ERTC for the first and second calendar quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers – those with an average of 500 or fewer full-time employees in 2019 – may request advance payment of the credit (subject to certain limits). In 2021, advances are not available for employers larger than this. Further details on how to calculate and claim the ERTC for the first two calendar quarters of 2021 are available in the IRS guidance.

BRAC encourages businesses to seek professional guidance from an accountant or CPA firm to learn more details about whether the ERTC can be financially impactful for your company. Learn more here.

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