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New law extends COVID tax relief to support businesses impacted by COVID-19

January 28, 2021 5140

Quick Summary:

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 modifies and extends the Employee Retention Credit, allowing employers to claim a refundable tax credit against the employer share of Social Security tax until June 30.

Practice owners will have the opportunity to take advantage of the newly extended Employee Retention Credit in 2021. Previously implemented through the CARES Act, the ERC was designed to provide relief to businesses that kept their employees on the payroll despite challenges posed by the pandemic.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 modifies and extends the ERC, allowing employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees between Dec. 31, 2020, and June 30, 2021.

Employers are eligible for the extension if they operate a business between Jan. 1, 2020, and June 30, 2021, and experience either:

  • A full or partial suspension of the operation of their business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19.
  • A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019. (To be eligible based on a decline in gross receipts in 2020, the gross receipts were required to be less than 50%.)

The new legislation also redefines qualified wages for small employers, which had an average of 500 or fewer full-time employees in 2019, as wages paid to all employees during a period in which business was fully or partially suspended and the employer had a decline in gross receipts regardless of whether the employees were providing services.

Small employers with 500 or fewer full-time employees may request advance payment of the credit using Form 7200.

Retroactive to the March 27, 2020, enactment of the CARES Act, the law now allows employers who received the Paycheck Protection Program loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.

Find additional information on how to claim the employee retention credit in the IRS’s FAQ. Practice owners with additional questions about applying for the ERC or PPP loan forgiveness are advised to seek guidance from a certified public accountant.