By Manny Ramirez and Fernando Jimenez
The Consolidated Appropriations Act of 2021, signed into law in December 2020, modified some of the CARES Act provisions, including expanding Employee Retention Tax Credit (ERTC) eligibility and extending the deadline to apply. Previously, under the CARES Act, employers could not get a Paycheck Protection Program (PPP) loan AND claim the ERTC. Under the new law, business owners can get aid from both provisions, including borrowers from the initial round of PPP who were originally ineligible.
The ERTC covers wages paid to employees retained through the COVID crisis that were not forgiven under PPP. It is now available through June 30, 2021, and is intended to help businesses navigate the continued financial disruption caused by the COVID-19 pandemic.
Any sole proprietor, limited liability company (LLC), S-Corporation or C-Corporation with less than 500 full-time equivalent employees is eligible, as long as they meet the following criteria:
- They were partially or fully suspended or had to reduce hours due to forced closures or quarantine.
- They experienced a decline in gross receipts by more than 50% in any quarter in 2020 compared to the same quarter in 2019 and each successive quarter in 2020 until they are greater than 80% of gross receipts in the same quarter in 2019.
- They experienced a decline in gross receipts by more than 20% in any quarter in 2021 compared to the same quarter in 2019 (reduced from 50% from 2020).
Changes that Impact Small Businesses
- The credit was raised from 50% to 70% of qualified wages per quarter, paid between January 1, 2021, and before July 1, 2021;
- Each employee’s allowable wage increased from $10,000 for the year to $10,000 per quarter;
- A safe harbor was created that allows employers to use prior-quarter gross receipts to determine eligibility.
How does the ERTC work with PPP?
Business owners are now entitled to the first and second round of PPP and the ERTC. However, PPP funds and ERTC cannot be used to cover the same payroll costs. It is essential to place any PPP funds into a separate bank account and carefully track the utilization of expenses in case of an audit.
We Can Help
Don’t miss out on this significant opportunity. If you have questions about if you qualify or which forms are needed, please contact RJI CPAs.