The American Rescue Plan broadened the ERC, set some clear boundaries, and clarified which wages could be utilized for the credit.
Key insights
- The ERC is now available to eligible employers for all four quarters in 2021.
- Recovery start-up businesses can qualify for up to $50,000 per quarter.
- For severely distressed employers, the 500-employee limitation does not apply.
- The ARP provides clarity on what credits may not overlap with the ERC.
Need help understanding the mechanics and availability of the ERC?
The American Rescue Plan (ARP), signed into law by President Biden on March 11, 2021, gave some clarity and additional relief to organizations seeking to claim the employee retention credit (ERC). Most notably, the credit has been extended through the end of 2021, allowing up to $7,000 per employee per quarter for eligible employers — for a maximum credit of $28,000 per employee this year.
The ARP expanded the credit to remove the 500-employee limitation on qualifying wages to severely distressed employers, who are employers that experienced a greater than 90% reduction in gross receipts when compared to the same quarter in 2019. This change only applies to the third and fourth quarters of 2021.
The definition of “eligible employer” now includes recovery startup businesses, which are businesses started after February 15, 2020 that had 1 million or less in average gross receipts for a specified period of time. The credit for recovery startup businesses is limited to a $50,000 maximum per quarter. This change also only applies to the third and fourth quarters of 2021.
The ARP clarifies what wages are excluded from the ERC. Qualified wages are not available if they have also been used for programs in:
- Section 41 (credit for increasing research activities)
- Section 45A (Indian employment credit)
- Section 45P (employer wage credit for employees who are active duty members of the uniformed service)
- Section 45S (employer credit for paid family and medical leave)
- Section 51 (work opportunity tax credit)
- Section 1396 (empowerment zone employment credit)
- Section 3131 (credit for paid sick leave)
- Section 3132 (credit for paid family leave)
Further, it clarifies the ERC coordination with certain other programs, and states that the same payroll dollars may not be taken by organizations claiming a covered loan under:
- Section 7(a)(37) or 7A of the Small Business Act
- A grant under Section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act
- A restaurant revitalization grant under Section 5003 of the American Rescue Plan Act of 2021
How we can help
With all this new information, it is important to make a plan for the use of payroll dollars in connection with various economic relief programs. Please reach out to us for help understanding the programs and developing your strategic approach.