Recent Changes To The Employee Retention Credit

The Employee Retention Credit (ERC) has been a vital lifeline for businesses impacted by the COVID-19 pandemic. Since the implementation of the CARES Act in 2020, the ERC has helped countless businesses keep their doors open and retain their employees during these challenging times.

Recently, the ERC has undergone some significant changes that businesses should be aware of to take full advantage of this credit.

To help provide insights into these changes, we have enlisted the expertise of Stenson Tamaddon, a leading accounting and consulting firm that has helped numerous clients navigate the complex world of tax and accounting.

With their guidance, we will break down the changes to the ERC and their impact on businesses.

Whether you have already taken advantage of the ERC or are considering doing so, understanding these recent changes is critical to maximizing the benefits of this credit. So let’s dive in and explore what you need to know about the recent changes to the Employee Retention Credit.

What Is An Expansion Of Eligibility?

One of the recent changes to the Employee Retention Credit (ERC) is the expansion of eligibility criteria, which makes more businesses eligible for the credit. Retention meaning is holding something just like this. The ERC was originally created to help businesses impacted by the pandemic retain their employees by offering tax credits for wages paid to eligible employees.

They are all eligible for the ERC; businesses had to meet certain criteria, including the declining curve of gross receipts level, which is full of partial suspension with the operations due to the government orders.

With the recent changes to the ERC, the eligibility criteria have been expanded in two key ways:

Changes To Gross Receipts Threshold

Before, a company might qualify for the ERC if it could show that its quarterly gross receipts were down by at least 50% in 2020 or 2021 compared to the same quarter in 2019.

Under the new rules, businesses can qualify for the employee retention credit with a decline of only 20% in gross receipts for a quarter of 2022 compared to the same quarter in 2019. This lower threshold allows more businesses to qualify for the credit.

Changes To Eligibility For Government Employers 

Originally, government employers were not eligible for the ERC. Under the new rules, certain government entities, including colleges, universities, and hospitals, are now eligible for the credit.

These changes to the eligibility criteria for the ERC provide more opportunities for businesses to qualify for the credit and receive financial assistance to retain their employees.

However, it’s important to note that there are still limitations and restrictions on who can claim the employee retention credit. Businesses should consult with a tax professional to determine their eligibility and the amount of credit they can claim.

Increase In Maximum Credit Amount

Another significant change to the Employee Retention Credit (ERC) is the increase in the maximum credit amount that eligible businesses can claim. The ERC is a tax credit that businesses can claim for wages paid to eligible employees up to a certain limit.

The credit was originally set at a maximum of $5,000 per employee for 2020 and $7,000 per employee for 2021.

With the recent changes to the ERC, the maximum credit amount has been increased in two ways:

Increase In Credit Amount Per Employee

The maximum credit amount per employee has been increased from $5,000 to $10,000 for 2021 and 2022. This means that eligible businesses can claim a credit of up to $10,000 for each employee retained during the eligible quarter.

Maximum Credit Amount For A Single Quarter

The maximum credit amount that eligible businesses can claim for a single quarter has been increased from $7,000 to $10,000. This means that eligible businesses can claim up to $10,000 for each employee for each eligible quarter.

These increases in the maximum credit amount provide a significant boost to the financial assistance available to businesses through the ERC. With higher employee retention credit amounts, businesses can receive more support for retaining their employees during the ongoing challenges of the pandemic.

However, businesses must still meet eligibility requirements and follow the rules for claiming the ERC to receive this credit.

Read Also: 5 Tips to Boost Employee Satisfaction

Changes To The Recovery Startup Business Credit

In addition to the changes to the Employee Retention Credit (ERC), there have been significant changes to the Recovery Startup Business Credit (RSBC). The RSBC is a credit available to certain small businesses that began operating after February 15, 2020, and meet certain criteria.

The recent changes to the RSBC are as follows:

Increase In Credit Amount

The maximum employee retention credit amount for the RSBC has been increased from $50,000 to $100,000 per eligible business.

Extension Of Eligibility Period

The eligibility period for the RSBC has been extended to include businesses that began operating before January 1, 2022. Previously, the eligibility period was limited to businesses that began operating after February 15, 2020.

Expansion Of Eligible Businesses

The RSBC is now available to more businesses, including partnerships, certain trusts, and certain non-profit organizations.

These changes to the RSBC provide more opportunities for small businesses impacted by the pandemic to receive financial assistance. The increase in the maximum credit amount and the expansion of eligibility criteria mean that more businesses can qualify for the employee retention credit and receive higher amounts of support.

It’s important to note that businesses must still meet eligibility requirements and follow the rules for claiming the RSBC to receive this credit. Businesses should consult with a tax professional to determine their eligibility and the amount of credit they can claim.

Extension Of ERC Availability

The Employee Retention Credit (ERC) was originally set to expire on December 31, 2021. However, with the ongoing challenges of the pandemic and the economic impact on businesses, the availability of the ERC has been extended.

Under the new rules, the ERC is available for eligible businesses for the following periods:

1. Quarter 1 and 2 of 2021: Eligible businesses can claim the ERC for wages paid between January 1, 2021, and June 30, 2021.
2. Quarter 3 and 4 of 2021: Eligible businesses can claim the ERC for wages paid between July 1, 2021, and December 31, 2021.
3. Quarter 1 and 2 of 2022: Eligible businesses can claim the ERC for wages paid between January 1, 2022, and June 30, 2022.

This extension of the employee retention credit availability provides more opportunities for eligible businesses to receive financial assistance for retaining their employees during the ongoing challenges of the pandemic. However, it’s important to note that there are still limitations and restrictions on who can claim the ERC and how much credit they can claim. Businesses should consult with a tax professional to determine their eligibility and the amount of credit they can claim.

Conclusion

The recent changes to the Employee Retention Credit (ERC) and the Recovery Startup Business Credit (RSBC) provide much-needed financial assistance to businesses impacted by the ongoing challenges of the pandemic. The increases in the maximum credit amounts, the expansion of eligibility criteria, and the extension of availability periods offer more opportunities for businesses to claim these credits and receive higher amounts of support.

It’s important for businesses to carefully review the eligibility requirements and follow the rules for claiming these credits. Consulting with a tax professional can help businesses determine their eligibility and the amount of credit they can claim. As we moved forward in 2022, it will be important to monitor any further changes or updates to these credits and take advantage of any opportunities for financial assistance.

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