The U.S. Senate and House of Representatives overwhelmingly passed a $900 billion COVID-19 relief bill Monday night that provides $600 stimulus payments to individuals, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses.

One of the bill’s key provisions is an expansion of the employee retention credit (ERC), which was part of 2020’s CARES Act. This was a mutually exclusive option to a PPP loan, so few of our clients took advantage of it. The credit was only available for 2020, and offset a taxpayer’s payroll tax liability. The credit was equal to 50% of the first $10,000 of qualified wages paid to an employee during an “eligible quarter;” generally, either a quarter in which 1) the business had its operations fully or partially suspended by an appropriate government order, or 2) the business had a precipitous drop in gross receipts quarter-over-quarter when comparing 2020 to 2019. The credit was computed differently if the business had more than 100 employees – above that threshold, the employer could only claim the credit on wages paid to employees NOT to work.

The new relief bill extends the ERC through July 1, 2021, and greatly expends several aspects of the credit for amounts paid in the first two quarters of 2021. First, the credit percentage is increased from 50% to 70% of qualified wages. Qualified wages, in turn, are increased from $10,000 in TOTAL per employee to $10,000 per quarter per employee, while the change in treatment of qualified wages that once occurred above 100 employees now does not kick in until employees exceed 500. In addition, a mere 20% drop in quarter-over-quarter receipts are now required to make a quarter an “eligible quarter,” rather than the 50% initially required by the CARES Act.

Perhaps most importantly, a taxpayer may now claim the ERC and take out a PPP loan; they are no longer mutually exclusive. Any wages upon which an ERC is computed, however, would not be forgivable costs under the PPP program.

In short, many businesses that are continuing to experience declining revenue in 2021 may now qualify for this credit. Please contact your payroll provider for more information on how to claim the credit.