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Employee Retention Credit: Updates that Apply to 2021

Employee Retention Credit: Updates that Apply to 2021

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The Employee Retention Credit, a payroll tax credit intended to incentivize the retention of employees by businesses hardest hit by the pandemic, is a provision in the CARES Act passed by Congress shortly after the onset of the COVID-19 pandemic in the United States. Businesses need to meet one of two thresholds in order to qualify for the credit:

  • A business had its operations suspended in full or in part as a result of a government stay-at-home, quarantine, or other similar order related to COVID-19, or
  • In any given quarter of 2020, a business had its revenues decline by 50% or more when compared to the same quarter in 2019.

The Consolidated Appropriations Act passed in December 2020 and the American Rescue Plan Act passed in March 2021 introduced four significant revisions to the employee retention credit that employers need to consider carefully:

  • The end date of the employee retention credit was extended from December 31, 2020 to December 31, 2021
  • The credit rate per employee was increased to 70% of qualified wages and the per-employee credit limit was raised from $5,000 per year to $10,000 per year
  • An employer with less than 500 employees can claim the credit on almost all employee wages during the period of eligibility
  • An employer’s eligibility for the credit is based on demonstrating a 20% revenue decline in any quarter of 2021 compared to the same quarter of 2019

As the first quarter of 2021 has ended, these changes to the employee retention credit have become significant in that more businesses are now eligible than were in 2020. Additionally, taking advantage of the credit for 2021 may prove to be much more lucrative for businesses when compared to the credit received for 2020.

We urge you to speak with your Price Kong advisor to evaluate your eligibility for this tax credit. We have already helped numerous clients receive tens of thousands of dollars and would love to help you realize equal, or potentially better, results.

Price Kong, we are ready to help navigate these changes and answer any questions you may have regarding the employee retention credit. Contact us at 602.776.6300 or [email protected].

Price Kong was established in Phoenix in 1967. Since then, our team has grown to 50 professionals and includes seventeen CPAs. The depth of our audit and tax practices allows us to provide services to clients in numerous industries, of a wide-range of sizes, and with revenues ranging from $1 million to over $500 million.

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