Unpacking PPP2 Impacts Upon Employee Retention Credit



As part of our continuing effort to fully unpack the implications of the Economic Aid Act on all things Paycheck Protection Program (PPP), the time has come to take a look at how the Employee Retention Credit is different from its inception. Originally part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Employee Retention Credit has experienced some modification in 2021.

The original terms of the Employee Retention Credit are as follows:

  • Available to businesses with less than 500 full-time employees in 2019
  • Refundable tax credit up to $5,000 per employee for wages paid between March 13th and December 31, 2020, but only for wages paid during a calendar quarter in which the business
    • Operations were fully or partially suspended by government order limiting commerce, travel or group meeting due to COVID-19 such that the employer can still continue some, but not all of its typical operations, or
    • Experienced a 50% reduction in gross receipts when comparing current quarter to the same quarter from the prior year
  • For businesses with more than 100 full-time employees in 2019, qualified wages are the wages paid to an employee for time that the employee is not providing services cut to full or partial suspension of operations or a significant decline in gross receipts.
  • Prior to the Act, if the business received PPP loan it was not eligible for this credit.

With the passage of the Economic Aid Act in December, the Employee Retention Credit experienced a number of enhancements.

  • PPP borrowers qualify
  • Credit extended through June 30, 2021
  • Public colleges and public health care entities can claim credit
  • Qualified wages per employee increased from $10K for the year to 10K per quarter
  • Eliminated 30-day look-back period that limits qualified wages (can give pay raises)
  • Credit calculation increased from 50% to 70% of qualified wages
  • Significant decline in gross receipts based on 20% versus 50% of 2019 gross receipts.
  • Election to use prior quarter gross receipts to determine eligibility (e.g., use Q4 2020)
  • All wages qualify if employer has 500 employees or fewer. For employers with greater than 500 employees, only wages paid to employees not rendering services versus not rendering services. In 2020, test was 100 employees
  • Employers not in existence in 2019 can claim the credit
  • Employers with 500 or fewer employees qualify for advance payment of the credit

In addition to these enhancements, three big updates regarding the Employee Retention Credit also now apply. The Consolidated Appropriations Act included a provision that retroactively allows PPP borrowers to take the credit, however, borrowers cannot receive a credit for payroll costs paid with PPP loan proceeds. Further, consistent across all government programs, double-dipping is prohibited.

Second, an extension of June 30, 2021 was applied to the program, starting January 1, 2021. The credit increased to 70% of qualified wages limited to first $10,000 of qualified wages per quarter and $14,000 total per employee. The significant decline was also reduced to 20% when comparing gross receipts for the quarter to the prior year quarter. Finally, there is now an opportunity for potential refunds in 2020 and additional credits in 2021.

This breakdown of the impact of the Economic Aid Act on the Employee Retention Credit was detailed as part of the recent MICPA’s PPP2 Lunch Break Roundtable. Our panel, Leon LaBrecque, JD, CPA, CFP, CFA of Sequoia Financial Group, Jamie Lopiccolo, CPA, CGMA at Capocore Professional Advisors, and Bob Weins, JD, CPA of Insights3 discussed the who, what and when of the PPP2. Get the answers to all your PPP questions and a replay of their conversation on the MICPA PPP2 Resources webpage

Source: MICPA

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