Employee Retention Credit Expanded
On December 27, 2020, the President signed into law the Consolidated Appropriations Act of 2021, which includes certain tax relief. One provision to provide COVID-19 pandemic relief was to expand the employee retention credit under the CARES Act by extending it six months and allowing the credit to be applied to businesses receiving PPP loan forgiveness.
The Employee retention credit for businesses affected by COVID-19 encourages businesses to keep employees on their payroll. Eligible employers can claim this refundable tax credit for 50% of up to $10,000 in wages, including related health care costs. The maximum credit is $5,000 per employee. It can be applied against certain employment taxes.
Employers can also claim the credit for qualified wages paid between March 13, 2020 and June 30, 2021, on Form 941. Eligible employers are those businesses with operations that have been partially or fully suspended due to governmental orders from COVID-19, or businesses that have a significant decline in gross receipts compared to 2019. The credit is available to all eligible employers regardless of size, including tax-exempt organizations but not government entities.
The refundable credit is capped at $5,000 per employee and applies against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the employee retention credit for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers
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