The Employee Retention Credit was introduced in March 2020 by the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act). We discussed this original iteration (the “Old ERC”) in a prior alert. The Consolidated Appropriations Act, 2021 (“CAA”), both retroactively modified the Old ERC and introduced a new ERC (the “New ERC”), effective January 1, 2021. These changes increase the amount of relief available and the types of eligible businesses.
While these changes present greater benefits to more employers, and better planning opportunities, it is important to remember that we still have no formal guidance in this area. Rather, the Internal Revenue Service (“IRS”) has only issued Frequently Asked Questions (“FAQs”), which not only do not have precedential value, but are not binding on the IRS and, as we have seen over the past year, are subject to frequent changes. Thus tax planning involving these provisions should be done with caution and with experienced tax counsel.
The Old ERC was made available by the CARES Act to employers whose businesses either were (a) fully or partially suspended, or (b) had significant reductions in gross receipts. The Old ERC can be up to $5,000 per employee for qualified wages paid during the period from March 12, 2020, through the end of 2020. The Old ERC is economically realized by reducing quarterly tax deposits, and to the extent this reduction is not sufficient, the employer can file a Form 7200 and request a tax refund, or amend its Form 941 by filing a Form 941-X.
Retroactive to March 13, 2020, the effective date of the Old ERC:
The New ERC applies for wages paid beginning January 1, 2021, and ending June 30, 2021:
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.
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