The Consolidated Appropriations Act of 2021 (CAA) and The American Rescue Plan Act (ARPA) both made changes to the Employee Retention Tax Credit under the CARES Act. See below FAQs for details, including information on the new NON-COVID-19 Disaster Employee Retention Tax Credit.
Tax credits under the FFCRA, and Social Security Tax Deferral under the CARES Act are also detailed below.
Generally, no. While the American Rescue Plan ACT (ARPA) had extended the application of employee retention tax credit (ERTC) to December 31,2021, the new Infrastructure Investment and Jobs Act provides that the ERTC expired on September 30, 2021.
However, employers that qualify as recovery startup businesses can still apply for the ERTC through December 31, 2021 if they meet the ERTC eligibility requirements. The ARPA defines a recovery startup business as a company that (1) began operations after February 15, 2020 and (2) has average annual gross receipts of $1,000,000 or less.
The Consolidated Appropriations Act of 2021 (CAA) made a number of changes to the Employee Retention Tax Credit under the CARES ACT:
ORIGINAL CARES ACT GUIDANCE
Any employer, regardless of size, is eligible for the CARES ACT employee retention credit during calendar year 2020 if(1) it is fully or partially suspended due to a governmental order related to COVID-19, or (2) experiences a significant decline in gross receipts) (i.e., a reduction of 50 percent of gross receipts from the same quarter in 2019). The credit is equal to 50 percent of the qualified wages paid by the employer with respect to each employee. The amount of qualified wages with respect to any employee for all calendar quarters in 2020 cannot exceed $10,000. In other words, there is a $5,000 total cap on the credit per employee for the 2020 tax year.
The definition of qualified wages differs depending on the size of the business.
For an employer with more than 100 full-time employees, qualified wages include wages paid to employees when they are not providing services due to a governmental order related to COVID-19. If an employee is performing services on a reduced schedule, wages paid to the employee are only treated as qualified wages if they exceed what the employee would have otherwise been paid for the services performed. In that case, employers will receive a credit for the difference between the total wages paid to the employee paid and the amount the employee would have been paid for the reduced hours or services actually provided by the employee.
For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether or not the employee is providing services to the employer.
Regardless of business size, qualified wages include certain healthcare costs paid by an employer to maintain a group health plan.
Qualified wages do not include wages taken into account for purposes of the payroll tax credit required for Paid Sick Leave or Emergency Family Medical Leave under the Families First Coronavirus Response Act (FFCRA) (discussed further below). This exemption prevents both credits from applying to the same wages paid by an employer.
Yes. The American Rescue Plan (ARPA) extends the application of the employee retention tax credit that had been set to expire on June 30, 2021 to December 31, 2021. The employee retention tax credit had previously only applied to wages paid before January 1, 2021.
Yes. For the third and fourth quarter of 2021, the ARPA creates a new category of eligible employer for recovery startup business. This new category is defined as an employer that (1) started business after February 15, 2020, (2) have average annual gross receipts of not over $1 million dollars, and (3) is not otherwise eligible for ERTC for the quarter.
Employers in this new category are limited to a total of $50,000 total employee retention tax credit per quarter.
Yes. Under the CARES Act, the credit had been equal to 50 percent of the qualified wages paid by the employer with respect to each employee. The CAA increased the percentage from 50 percent to 70 percent of applicable qualified wages.
Yes. Under the Cares Act, the amount of qualified wages with respect to any employee for all calendar quarters in 2020 could not exceed $10,000. The CAA increases the per employee limitation from $10,000 total to $10,000 per calendar quarter. When taking into account the increase in the tax credit, the maximum credit per employee has raised from $5,000 total to $7,000 per quarter for a maximum credit of up to $14,000 until December 31, 2021 when the increased credit and limitation is in effect.
Yes. Previously, the CARES Act allowed employers to seek the employee retention credit if they experienced a significant decline in gross receipts (i.e., a reduction of 50 percent of gross receipts from the same quarter in 2019). The CAA made the employee retention credit available if a business experienced a reduction in gross receipts of 20 percent as compared to the same calendar quarter of the previous year. Employers also have the option of measuring the reduction in gross receipts on the immediately preceding calendar quarter.
Yes. Previously under the CARES Act, eligible employers with 100 or fewer full-time employees, could have all employee wages qualify for the credit, whether or not the employee is providing services to the employer.
Under the CAA, eligible employers with 500 or fewer employees can now have all employee wages qualify for the credit, whether or not the employee is providing services to the employer.
The CAA repeals the CARES Act restriction of denying employee retention credit to an employer who receives a loan under the PPP. However, mechanisms will be created to prevent the same wages from being used for both PPP loan forgiveness the employee retention credit.
You will need to submit the Engage CARES Act Employee Retention Tax Credit form that sets forth the tax credit you are seeking. Engage will credit such reported tax credits to the applicable federal employment taxes to your payroll invoice at the time of processing. Please contact your Account Manager to obtain the form and instructions on how to complete it.
In addition to submitting the Engage CARES Act Employee Retention Tax Credit form to Engage (obtained from your Account Manager), clients seeking a refundable credit must file an IRS Form 7200 (Advance Payment of Employer Credits Due to COVID-19) to the IRS and await payment of the refundable credit from the IRS/Treasury Department. Employers must also provide Engage with copies of any IRS Form 7200 they file with the IRS to Engage to allow Engage to reconcile IRS Form 941.
The CAA limits advance payments of credit to employers with 500 or fewer employees, and the amount of the advance for a quarter may not exceed 70 percent of the average quarterly wages paid by the employer in calendar year 2019.
See Engage's COBRA Subsidy FAQs here
The FFCRA provides businesses with tax credits to cover certain costs of providing employees with required paid sick leave (“PSL”) and paid expanded family and medical leave (“EMFLA”) for reasons related to COVID-19, from April 1, 2020, through September 30, 2021. The tax credits had previously been set to expire as of March 31, 2021, but the ARPA extended the credits through September 30, 2021.
However, the FFCRA’s requirement to provide employees with paid PSL or EFMLA does not extend beyond December 31,2020. It is up to employers to decide if they will voluntarily provide paid PSL and EMFLA wages for which they may receive tax credits.
Wages covered by EFMLA credit have been increased from aggregate $10,000 to $12,000 per individual for Q2 and Q3 calendar quarters of 2021.
The American Rescue Plan Act (ARPA) further provides that tax credits for employers who voluntarily provide PSL or EFMLA for employees who are:
The ARPA prohibits employers seeking the PSL or EFMLA tax credits from discriminating against its employees in providing such paid leave on the basis of (i) tenure, (ii) high compensation, or (iii) full time status.
The ARPA also resets the 10-day limit for paid sick leave under the FFCRA starting on April 1, 2021. Meaning employers can voluntarily decide to provide employees with an additional 10 days of paid PSL starting on April 1, 2021.
The FFCRA entitles employers to receive a tax credit for the full amount of: (i) qualified PSL wages, (ii) qualified EFMLA wages, (iii) allocable heath plan expenses, and (iv) the employer’s share of Medicare tax.
Qualified PSL wages are wages that the FFCRA requires an employer to pay to an employee who is unable to work or telework because of either the employee’s personal health status (that is, the employee is under COVID-19 quarantine or self-quarantine or has COVID-19 symptoms and is seeking a medical diagnosis) or the employee’s need to care for others (that is, the lll employee is caring for someone with COVID-19 or for a child whose school or place of care is closed or child care provider is unavailable).
Qualified EFMLA wages are wages that the FFCRA requires an employer to pay to an employee who is unable to work or telework because the employee is caring for a child whose school or place of care is closed or child care provider is unavailable due to COVID-19-related reasons.
In addition to the changes to the CARES Act, the CAA created an additional employee retention tax credit of up to 40 percent of qualified wages up to $6,000 (with a maximum credit of $2,400 per eligible employee) for eligible employers affected by disasters in 2020 but not including disasters that were declared only due to COVID-19.
The credit will be treated as a general business credit against income taxes. However, some tax-exemption organizations may take this as a credit against payroll taxes.
Clients seeking the FFCRA PSL and EFMLA tax credits must (i) submit the PSL and/or EFMLA forms for employees taking such leave to Engage, (ii) submit the PSL and/or EFMLA tax credit forms to Engage and (iii) fund the PLS and/or EMFLA pay for the applicable payroll. Engage will credit such reported tax credits to the applicable federal employment taxes to your payroll invoice at the time of processing. Copies of the Engage PSL and EFMLA forms can be found in the Engage Forms Library
If a client’s FFCRA PSL and/or EFMLA tax credit exceeds the amount of federal tax owed for that pay period, in addition to the Engage PSL and EMFLA forms set forth above, Client must also file an IRS Form 7200 (Advance Payment of Employer Credits Due to COVID-19) to the IRS and await payment of the refundable credit from the IRS/Treasury Department. Employers must also provide Engage with copies of any IRS Form 7200 they file with the IRS to Engage to allow Engage to reconcile IRS Form 941.
The CARES Act allows employers to delay payment to the IRS of the employer share of Social Security taxes on its employees that would ordinarily be paid from March 27, 2020 through December 31, 2020. Employers who decide to defer must pay 50% of the deferred 2020 Social Security Tax by December 31, 2021 with the remaining 50% due for payment by no later than December 31, 2022.
Clients seeking to defer their Social Security taxes must first complete an Acknowledgment form of Social Security Tax Deferment from Engage. The form is customized for each client. Please contact your Account Manager to request the form and instructions on how to complete it.
Yes. Clients (employers) who have received PPP loans from the SBA may still defer their share of Social Security taxes that would ordinarily be paid starting on the date indicated on the Engage Acknowledgment form -- obtained from your Account Manager - through the date the PPP loan lender issues a decision to forgive the loan without incurring penalties.
However, once you receive a decision from your lender that your PPP loan is forgiven, you may no longer defer your share of Social Security Taxes after that date. Please notify Engage when your lender forgives your PPP loan in order for Engage to discontinue the deferment of Social Security Taxes. The Social Security Taxes that were deferred prior to the date the PPP lender forgives the loan remain due on the dates noted in the first question (above):
"Employers who decide to defer must pay 50% of the deferred 2020 Social Security Tax by December 31, 2021 with the remaining 50% due for payment by no later than December 31, 2022".
Your organization entered into a co-employment relationship with Engage when you entered into your Client Services Agreement. As part of the co-employment relationship, your worksite employees are paid under Engage’s FEIN, not your organization’s FEIN and as such, it is Engage that must file the IRS form 941 on behalf of you and all of our clients who are co-employed with us.