Changes To The Employee Retention Credit

May 10, 2021 | CPA Blog |

Since the SBA just announced that the Paycheck Protection Program is done for now, it’s time to turn to other benefits for small business owners that are struggling to get back on their feet.

Thankfully the Employee Retention Credit (ERC) can be a real boon for small business owners and something worth revisiting in 2021.

Although the Employee Retention Credit was available in 2020, the Relief Act made changes to the ERC for the first two calendar quarters of 2021, including:

  • the increase in the maximum credit amount,
  • the expansion of the category of employers that may be eligible to claim the credit,
  • modifications to the gross receipts test,
  • revisions to the definition of qualified wages, and
  • new restrictions on the ability of eligible employers to request an advance payment of the credit.

Although the Employee Retention Credit has been available since the passing of the CARES Act in 2020, it didn’t get as much attention due to the Payroll Protection Program.  In 2020 if a business owner received any funds from PPP, they weren’t eligible for the ERC.

However, the above changes have since made the ERC much more beneficial for applicable small businesses to reconsider.

Even if the business did receive PPP funds, they may still be eligible to claim a portion of the Employee Retention Credit.

Among some of the changes for 2021, the Employee Retention Credit now applies to businesses with 500 or fewer employees (an increase from the 2020 threshold of 100 or fewer employees).

It is also easier to qualify in 2021 than it was in 2020, with businesses only needing to show a 20% decrease in gross receipts, as well as the option for a more favorable look-back to the prior quarters (a decrease from the 2020 threshold of 50% decrease in gross receipts).  This means far more businesses will qualify for the ERC in 2021 than in 2020.

The IRS has provided Form 7200 “Advance Payment Of Employer Credits Due To Covid-19”, allowing businesses to receive advance payments to help with cash flow issues.  

You can check out more information and details about the changes to the Employee Retention Credit for 2021 HERE