The CARES Act created a refundable “employee retention credit” as incentive for employers to retain their employees during the 2020 pandemic. Specifically, employers received a credit against their share of the Social Security taxes on “qualified wages” paid to retained workers during 2020. The Consolidated Appropriations Act signed into law by President Trump on December 27, 2020, makes significant changes to the employee retention credit for 2021. The table below highlights some of the key changes.
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CARES Act
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Consolidated Appropriations Act
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The employee retention credit was available for qualified wages (defined below) paid between March 12, 2020 and January 1, 2021.
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The employee retention credit was extended and is now available for qualified wages paid before July 1, 2021.
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Eligible employers could take an immediate and refundable credit against the employer portion of their Social Security payroll tax equal to 50% of qualified wages.
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Eligible employers may now take an immediate and refundable credit against the employer portion of their Social Security payroll tax equal to 70% of qualified wages.
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The maximum credit available per employee was $5,000 for all qualified wages paid during 2020.
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The maximum credit available per employee is now $7,000 per quarter for all qualified wages paid during 2021.
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“Qualified wages” for an eligible employer who averaged 100 full-time employees or less were any wages paid to employees, regardless of whether the employees were working (e.g., wages to furloughed employees and working employees were qualified wages).
“Qualified wages” for eligible employers who averaged more than 100 full-time employees were wages paid to employees who were not working (e.g., wages to furloughed employees were qualified wages and not wages paid to employees who were still working).
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The threshold was raised to 500 employees. Thus, qualified wages for eligible employers who average 500 or less full-time employees are now wages paid to employees, regardless of whether the employees are working. While qualified wages for eligible employers who averaged more than 500 full-time employees are wages paid to employees who are not working.
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Employers were eligible for the employee retention credit if business operations were either (1) fully or partially suspended by a COVID-19 lockdown order, or (2) for a quarter in 2020, gross receipts were less than 50% of gross receipts for the same quarter in 2019.
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Employers are now eligible for the employee retention credit in 2021 if business operations are either (1) fully or partially suspended by a COVID-19 lockdown order, or (2) for a quarter in 2021, gross receipts are less than 80% of gross receipts for the same quarter in 2019.
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An employer who received a Paycheck Protection Program (PPP) loan was ineligible for the employee retention credit.
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Employers who took a PPP loan are no longer prohibited from claiming the employee retention credit. However, double-dipping is not allowed – meaning, an employee retention credit may not be claimed for wages paid with the proceeds of a forgiven PPP loan.
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