January 13, 2021

Employee Retention Tax Credit Extended Under CAA 2021

Employee Retention Tax Credit Extended Under CAA 2021

The Consolidated Appropriations Act (CAA) of 2021, included a second round of PPP loans for businesses, but one thing you may not have caught are the changes to the employee retention tax credit (ERC).

Under the CARES Act, the ERC allowed qualified employers to claim a credit of 50% on employee qualified wages paid from March 13, 2020, through December 31, 2020. Now, the CAA has extended the ERC for wages paid from January 1, 2021, through June 30, 2021.

Under the CAA, the requirements or limits for wages paid during 2020 does not change. BUT, it does allow anyone who took out a Paycheck Protection Program (PPP) loan to claim the ERC. This provides businesses with an opportunity to go back and claim the ERC on 2020 wages, receiving tax credits for previous quarters in 2020. The one caveat is that the ERC and PPP loan forgiveness can not be claimed on the same wages.

This means that:

  • If businesses want to now claim the ERC for 2020 but already claimed the wages for PPP purposes, they may need to file an amended PPP loan forgiveness application.
  • If a business has not received full loan forgiveness, they may be able to claim the wages for ERC.

Since payroll tax corrections are done by filing a Form 941X, the catch-up credit could be claimed on the 2020 fourth quarter Form 941, which has a due date of February 1, 2021.

If you have any questions at all about your eligibility, please feel free to contact us at 212.213.8511 or contact@pnlawyers.com. We can help determine the best course of action for your business.

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