The Internal Revenue Service (IRS) recently announced updates to its employee retention credit (ERC) program. The agency clarifies the updates are specifically for the first and second quarters of 2021. The credit, as noted in a recent publication in the Journal of Accountancy, was updated as part of the initiatives created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and further amended by the Consolidated Appropriates Act.
How did the update impact the ERC?
The credit provides employers with refundable tax credits that help work against certain employment taxes. Three key changes include:
- Amount of credit. In the past, this program allowed employers to take a credit of up to 50% of qualified wages. The CARES Act increased this limit to 70%.
- Definition of an eligible employer. The changes also expanded exactly who can claim the credit. Universities, colleges, and businesses that provide medical care can now qualify.
- Restrictions on advances. The provision does limit the ability to request an advance payment. This applies to certain small employers with 500 employees or less.
These changes are currently only allowed for the first and second quarters of 2021. The Biden Administration has announced that it will provide information about additional changes for the third and fourth quarters at a later date.
What if changes impacted my 2020 tax filings?
The changes went into effect after many businesses filed their tax returns. As a result, taxpayers may want to file an amended return for their 2020 filings. Taxpayers generally have up to three years after filing their initial return to file an amendment. Although taxpayers can take some time to get everything in order, it is important to keep in mind that there is a time limit.
There are additional restrictions and rules. Employers can make the most of these and other tax advantages by navigating the system wisely. The attorneys at Goldburd McCone are familiar with taxes and business entities and can discuss the options that are best for your venture.