IRS extends employee retention credit into 2021

For a year now, employers have been dealing with massive loss of income and struggling to retain employees while employees are struggling to find a reliable paycheck. Pending stimulus checks, struggling businesses need look no further than the IRS. In response to this dilemma, the agency released the employee retention credit (ERC) of 2020 and extended it into 2021.

Good news

If you had employees and were economically affected by coronavirus restrictions in 2020, then you may qualify for the ERC, which stems from Congress’s 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its purpose is to assist businesses that retained their employees despite the hardships and challenges posed by the pandemic.

First, note this tax credit applies to two different periods, and the requirements vary for each respective period. The ERC was originally introduced in late March 2020 to cover the period from March 13 to December 31, 2020. To claim the credit in your 2020 tax return, you must have either experienced a full or partial suspension of the operation of your trade or business during any calendar quarter as a result of governmental COVID-19 restrictions, or a significant decline in gross receipts. The IRS defines a significant decline as gross receipts that are less than 50% of those from the equivalent calendar quarter in 2019. You must also have “qualified wages,” but we’ll get to that.