The CAA: Employee Retention Tax Credit Extension

The Consolidated Appropriations Act of 2021 (CAA) extends the Employee Retention Tax Credit program until June 30, 2021. Under this law, PPP loan borrowers are now eligible to receive these credits as well. 

Below, we outline what you need to know about this new provision.

What’s New

The Employee Retention Tax Credit was first introduced under the CARES Act to incentivize employers to retain employees throughout the COVID-19 pandemic. The original program refunded 50% of qualifying payroll expenses (up to $10,000 per employee) made from March 13, 2020 to December 31, 2020. 

Under the CAA, this credit now covers 70% of qualified payroll expenses (up to $10,000 per employee per quarter) until June 30, 2021. This means that eligible employers can claim up to $7,000 per employee per quarter.

Here’s what else has changed about this program:

Use with PPP Loans

Under the CAA, employers can now use the Employee Retention Tax Credits in conjunction with a PPP loan (so long as they use the credits for wages they aren’t paying with PPP loan funds). 

These employers can also retroactively apply the credits, so long as they meet the new eligibility requirements.

Eligibility

Under the CARES Act, an organization was eligible for this credit if:

  • Their operations were fully or partially suspended due to COVID-19
  • Their gross revenue decreased by 50% or more when compared to the same quarter in 2019

Now, an organization is eligible for this credit if:

  • Their operations were fully or partially suspended due to COVID-19
  • Their gross revenue decreased by 20% or more when compared to the same quarter in 2019

In addition, the original program only allowed businesses with 100 or fewer full-time  employees in 2019 to take full advantage of this credit. Now, businesses with 500 or fewer full-time employees are eligible. Employers that were not in existence for all or part of 2019 can now claim this credit as well.

What Do I Need to Do?

First, determine whether your business is eligible to receive these credits. If you are, and you received a PPP loan, make sure you aren’t using the credit and the PPP loan for the same payments.

You then need to total your qualifying payments to determine your credit amount. In general, qualifying payments consist of wages and qualified health expenses. To determine your total, count the number of full-time employees you have:

  • If you have more than 500 employees, only payments (wages and qualified health expenses) provided to employees who are not working due to business restrictions or suspension count as qualified payments. Any additional payments (such as payments for vacation or sick days, bonuses, etc.) are not considered qualified wages.
  • If you have 500 or fewer employees, payments (wages and qualified health expenses) made to non-working and working employees count as qualified payments. Payments for vacation and sick days (excluding leave provided under the FFCRA), bonuses, and other wages are also considered qualified payments.

Once you have this total, you need to report it on your quarterly employment tax returns or Form 941

To claim this credit, you can reduce your employer-paid portion of Social Security taxes for qualified employee wages by the amount of the credit. If your credit amount exceeds the employer-paid portion of Social Security taxes that you’re responsible for, you can receive a refund for any excess amount by completing Form 7200.

Our systems are equipped to properly track and process the extended Employee Retention Tax Credits. For more information about how Sentric can help, please contact one of our product experts.


For an overview of the CAA and its main provisions, please check out The Consolidated Appropriations Act of 2021 (CAA): What Employers Need to Know.


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