American Rescue Plan: Expansion of the Employee Retention Credit
The American Rescue Plan Act (ARPA), signed into law by President Biden on March 11, 2021, extends and expands several business tax credits including the Employee Retention Credit (ERC).
Employers whose operations were fully or partially suspended due to government orders - or who experienced a significant decline in gross receipts due to COVID-19 - are eligible for a refundable payroll tax credit up to 50 percent of qualified wages for 2020 and 70 percent of qualified wages for 2021. Originally set to expire on June 30, 2021, the ERC has been extended through December 31, 2021.
Along with the deadline extension, two new categories of businesses now qualify for the ERC. The expansion includes “recovery start-up businesses” or businesses that started after February 15, 2020 with annual gross receipts up to $1 million. The maximum credit that can be claimed by recovery start-up businesses cannot exceed $50,000 in any calendar quarter.
The other new category of eligibility is “severely financially distressed employers” - defined as companies that have a gross receipts reduction of more than 90 percent as compared to the same calendar quarter in 2019. If an employer meets this qualification, all wages paid to employees are qualified wages, regardless of the size of the employer or number of employees.
The statute of limitations for the IRS to asses amounts attributable to the ERC has been extended from three to five years. The clock begins to tick on the statute of limitations on the later of the filing date of the original return that includes the calendar quarter in which the credit is determined, or April 15 of the succeeding calendar year.