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1 1 (January 7, 2021)

handle is hein.crs/goveadw0001 and id is 1 raw text is: re$5iQr~M ~ase~ar~h $arw~e ~ th~. I d~ i~bA~ ~ ~44 January 7, 2021 The Employee Retention and Employee Retention and Rehiring Tax Credits The March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) included an employee retention taxcredit designed to help businesses retain employees during the Coronavirus Disease2019 (COVID-19) public health emergency. The credit was modified and expanded in December2020, becoming the employee retention andrehiring taxcredit, in the COVID- related Tax Relief Act of2020 (enacted as Subtitle B to Title II of Division N of the Consolidated Appropriations Act, 2021; P.L. 116-260). Table 1 summarizes the employee retention credits available in 2020 and 2021. The Employee Retention Tax Credit Employee retention credits have historically been deployed as a policy tool to provide dis aster taxrelief. The goalhas been to reduce thecost to employers ofkeeping employees on their payrolls during the dis aster recovery period. An employee retention taxcredit (ERTC) was enacted as a policy response to the COVID-19 pandemic, which has caused prolonged labor market disruptions. ERTC in the CARES Act Under the CARES Act, the ERTC could be taken for wages paid after March 12, 2020, and before January 1, 2021. Employers could claima payroll taxcredit of up to $5,000 per employee for qualified wages paid while closed or having reduced operations due to COVID-19. For 2020, the credit is computed as 50% of up to $10,000 in qualified wages paid to an eligible employee. (Eligible employees ate generally those who have been employed by the employer for at least 30 days.) Health plan expenses can be treated as qualified wages when computing the credit. Eligible employers are those who (1) are required to fully or partially suspend operations due to a COVID-19-related order (including nonprofit employers); or (2) have gross receipts 50% less than gross receipts in the same quarter in the prior calendar year (with the credit no longer being available once gross receipts are 80% of prior year calendar quarter gross receipts). Qualified wages for the purposes of the credit depend on the number ofemployees the employerhad during 2019. If the employerhad more than 100 full-time employees, qualified wages are wages paid when employee services are not provided. (Qualified wages are limited to the amount the employee wouldhavebeen paid for working an equivalent duration during the 30 days preceding the nonserviceperiod.) If the employerhad 100 or fewer full- time employees, all employee wages paid by eligible employers are credit-eligible. Wages taken into account for this credit cannotbe taken into account for the taxcredit for employer-provided paid family and medical leave. https ://c rs repo The structure as a payroll tax credit allows businesses to receive the benefit more quickly than typically would be the case for an income tax credit. The credit is refundable, meaning it can be received if credit amounts exceed payroll taxliability. Additionally, advance paymentof the credit is allowed. When the ERTC was enactedin the CARES Act, employes receiving Paycheck Protection Program(PPP) loans could not also claimthe ERTC. The COVID-related Tax Relief Act of2020 provided that employers receiving PPP loans could claim the ERTC with respect to wages notusedto support PPP loan forgiveness. This credit does not apply to government employers. A provision provides for transfers to the Old-Age and Survivors Insurance Trust Fund and the Dis ability Insurance Trust Fund, so that the Social Security trust funds would not be affected. ERTC in the COVID-related Tax Relief Act of 2020 The COVID-related Tax Relief Act of2020 extends the employee retention taxcredit to apply to wages p aid after December 31, 2020, and before July 1, 2021. The credit is renamed, now the employee retention andrehiring credit. The credit rate is increased to 70% of qualified wages. The credit can be computed on up to $10,000 in qualified wages paid to an eligible employee per calendar quarter. Thus, the maximum credit amount for 2021 is $14,000 (70% of up to $20,000 in qualified wages paid over the first two quarters). For 2021, the definition of eligible employer is modified so that employers with gross receipts 20% less thangross receipts in the s ame calendar quarter in 2019 can qualify for the tax credit. Employers can also use the previous calendar quarter (as opposed to the same calendar quarter in the previous calendar year) to es tablish eligibility for the credit. For 2021, qualified wages continue to depend on the employer's number ofemployees. The threshold below which employers can claimthe credit for all wages paid, as opposed to claiming it for wages paid only when services are not provided, is increasedto 500full-time employees. Additional changes to thecredit create specialrules for employers notin existence for 2019, potentially allowing such employers to be credit-eligible. Limits are also placed on advance payments. Certain governmentalemployers, including college and university and medicalor hospital employers, may also be credit-eligible in 2021. 9

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