The employee retention credit (ERC) was a provision of the CARES Act of 2020 and is meant to help businesses who experienced financial hardship due to the COVID pandemic. The credit has had some changes made to it recently. Those changes include expanding what businesses can take the credit and extending the time of the credit.
Originally the refundable credit was equal to 50 percent of qualified wages at $10,000 per year per employee that was paid by employers from March 13th, 2020 to December 31, 2020. If you took out a Paycheck Protection Program loan, you could not take the ERC.
That has all changed due to the Consolidated Appropriations Act of 2021. The act changed some of the provisions for the credit that were laid out in the CARES Act. One of the changes that was made to the credit is that the amount of time employers have to claim the credit has been extended. Eligible employers now have until June 30th, 2021 to claim the tax credit on wages paid to employees that they kept employed through the pandemic.
Another change to the tax credit is that now employers who took out a loan through the Paycheck Protection Program (PPP) can now claim the tax credit. This includes businesses that took out a PPP loan in the initial round of funding that was originally ineligible to claim the tax credit. However, the credit can only be taken on wages that are not forgiven or expected to be forgiven under PPP.
The ERC credit has also expanded the amount you can claim. Employers who qualify in 2021 can claim the credit against 70% of qualified wages paid. The amount of wages that qualify for the credit is now $10,000 per employee per quarter, for the first two quarters of 2021. So an employer could claim $7,000 per quarter per employee or $14,000 for 2021.