With the new COVID-19 stimulus package enacted on December 27, 2020, there have been significant boosts made to the employee retention credit (ERC) that became available to businesses with the passage of the first stimulus package in early 2020. Originally the credit was not available to any businesses that took a Paycheck Protection Program (PPP) loan, but with the new changes it is now available to be utilized by these businesses. However, to prevent double dipping, there is a limitation in place that any wages used as eligible expenses to claim forgiveness of the PPP loan amount cannot also be used for the purposes of claiming this tax credit.
The ERC provides a way for businesses to receive a refund for a certain percentage of wages paid to employees to help enable them to continue to pay their employees and other operating expenses even when business has been reduced due to lockdowns and other operations limitations during this pandemic. For more details on eligibility for the credit and a summary of the changes enacted at year end, check out this article from Paychex. Since some of the changes are retroactive, businesses are awaiting Internal Revenue Service (IRS) guidance on whether they will be able to go back and amend previously filed employment tax returns to claim credits they were not eligible for when those returns were originally filed. The IRS has noted that their frequently asked questions page will be updated with information related to the changes enacted as of December 27, 2020 as that information becomes available.
If you are interested in an overview of other payroll related changes that came from the new legislation, please take a look at A Run Through of the Payroll Related Provisions of the Latest COVID-19 Law.
Please reach out to Shelby Graham, CPA, (firstname.lastname@example.org) or your SDK advisor if you have questions or would like more information about this topic.