The Consolidated Appropriations Act of 2021 (The CAA), signed into law in late December 2020, included several favorable changes to Employee Retention Credits (ERCs). The focus of this article is to discuss the general features of ERCs as updated by the Act, to inform Paycheck Protection Program (PPP) loan recipients that they are now eligible for ERCs both retroactively to March 13, 2020 and prospectively through June 30, 2021, and to introduce the interplay between ERCs, PPP loans, and Save Our Stages (SOS) grants. This article will not go into detail on the PPP or SOS, but please see our separate communications on these programs as well as the Stimulus Package Headquarters at Withum.com which is continuously updated as guidance comes out.
General Employee Retention Credit Features
| 2020 | 2021 | |
| Wage Period | 3/13/2020-12/31/2020 | 1/1/2021-6/30/2021 |
| Eligibility | Either full or partial suspension of operations, or more than 50% decline in gross receipts in any 2020 quarter over same 2019 quarter | Either full or partial suspension of operations, or more than 20% decline in gross receipts in any 2021 quarter over same 2019 quarter |
| Credit Amount | 50% of qualified wages up to $10K yearly cap ($5K cap per employee for the year) | 70% of qualified wages up to $10K per Q1 and Q2 ($14k cap per employee for the year, $7K in each of Q1 and Q2) |
| Employer Size | 100 or fewer employees, any wages paid counted. Over 100 employees, only wages paid to employees not providing services counted | 500 or fewer employees, any wages paid count. Over 500 employees, only wages paid to employees not providing services count |
| Expansion | Group Health Care costs now count as qualified wages even if no other wages paid (furloughed employees), retroactive change | Group Health Care costs now count as qualified wages even if no other wages paid (furloughed employees) |
Claiming Multiple Benefits
- Before The CAA, PPP loan recipients were not eligible to claim ERCs; however, The CAA changed this and now allows PPP loan recipients to claim ERCs both retroactively and prospectively.
- SOS grant recipients are also permitted to claim ERCs
- PPP and SOS recipients that claim ERCs cannot use the same wages towards both benefits. For example, if a company pays an employee $10K in wages and uses forgivable PPP or SOS funds to pay the wages, the company could not take ERCs with respect to the $10K. Conversely, if the company paid the employee $20K in wages and only uses $10K of PPP or SOS funds for the employee, the remaining $10K of wages can be used to claim ERCs.
- SOS grant recipients cannot receive a PPP loan after December 27, 2020.
The majority of theatrical productions with wages paid during 2020 did not obtain PPP loans, but most did apply for, and receive ERCs. In most cases it will be beneficial for those productions, which meet the eligibility requirements, to apply for SOS grants. The immediate focus for theatrical productions should be to determine eligibility for SOS grants as outlined in our separate memo and await the SBA guidelines and application.
General managers and other businesses that support theatrical productions generally did obtain PPP loans, but did not previously obtain ERCs, and currently will not be eligible to receive SOS grants. The immediate focus for general managers and support businesses should be twofold: determine eligibility for PPP2 loans and await application, and consider claiming ERCs for qualified wages paid in 2020 which were not paid with forgivable PPP funding.
Going forward, PPP2 recipients and SOS grant recipients may want to consider holding off on claiming 2021 ERCs until they’ve determined that the allowable expenses have been utilized to maximize the benefit of PPP2 and SOS funding. The rationale here is that the PPP and SOS programs provide a dollar for dollar benefit while the ERCs provide a 70% benefit (in 2021).
To illustrate, if a company receives $1M in PPP or SOS funding and uses it to pay 100 employees $10,000 each, the benefit to the company is $1M. On the other hand, if the same wages were used to claim ERC credits, the benefit to the company is only $700K (in 2021). For PPP2 recipients, once the PPP covered period is over and the benefit has been maximized, any excess wages can be used towards ERCs.
In the case of SOS recipients, there are many variables which may make it unknown how much of the SOS grant can be spent down in the prescribed period (March 1, 2020 – December 31, 2021). For example, a show that maxes out the SOS at $10M will have a more difficult time expending the funds if it opens in October vs a show that opens in August. If this show had claimed ERCs for the first and second quarter of 2021, the payroll expenses used to apply for the ERCs will not be available against the SOS funding, and benefit will be lost. Therefore, it may beneficial to wait on the ERCs until more information is known.
Steps to Take Now:
General Managers and Other PPP1 Recipients – retroactively claim ERCs from March 13, 2020 through December 31, 2020 using wages not previously paid with forgivable PPP funds. The CAA included a provision to allow this to be done on the Q4 2020 Form 941 rather than amending prior 941s, though amending is still an option. Determine eligibility per above and if operations not suspended, run 2020 vs 2019 quarterly gross receipts (50% reduction).
Anyone Considering 2021 ERCs – Run 2019 gross receipts per quarter to be compared to 2021 gross receipts per quarter when the time comes (20% reduction).
PPP2 Candidates – Run 2020 gross receipts by quarter and compare to 2019 gross receipts by quarter to determine at least a 25% reduction in gross receipts in at least one of the quarters. Have 2020 and 2019 annual payroll records available. The loan amount will be based on the larger of the average monthly 2019 payroll or the average monthly 2020 payroll, multiplied by 2.5 ($2M limit). For those using 2019 payroll amounts, the loan amount will likely be the same as PPP1.
Theatrical Productions and other SOS Candidates – See our memo on SOS to determine eligibility and for actions to take.
reach out to any of our team members with any questions.
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