The Consolidated Appropriations Act, 2021 (CAA), enacted on Dec. 27, 2020, expands certain payroll tax credits and benefits tax relief enacted in previous COVID-19 relief legislation and adds certain new tax relief for employers and employees.
CARES Act employee retention payroll tax credit
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides eligible employers with an elective refundable and advanceable payroll tax credit, generally applied against the employer 6.2% Social Security tax. As originally enacted:
- Eligible employers must have experienced either a full or partial suspension of operations due to a COVID-19-related government shutdown order or a decline of more than 50% in gross receipts within a 2020 calendar quarter compared to the same quarter in 2019.
- Generally, the credit equals 50% of qualified wages paid between March 13, 2020, and Dec. 31, 2020, and during the time an employer is considered eligible.
- Qualified wages include certain wages paid to any nonworking employee of an employer with more than 100 full-time employees in 2019, or such wages paid to any employee of an employer with 100 or fewer full-time employees in 2019 – capped at $10,000 per employee (including expenses allocable to the employee for health benefits) for 2020.
- The credit was not permitted if the taxpayer (determined based on the taxpayer’s aggregated group) received a Small Business Administration loan under the Paycheck Protection Program (PPP). Read about the CAA’s significant amendments to the PPP.
Highlights of the CAA’s amendments to the CARES Act employee retention payroll tax credit that are effective for the first two quarters of 2021 include:
- Extending eligibility to employers experiencing a decline of more than 20% in gross receipts in an applicable calendar quarter compared to the same quarter in 2019
- Increasing the credit to 70% of qualified wages paid when an employer is eligible
- Increasing the employee threshold for determining qualified wages to 500 full-time employees in 2019
- Increasing the cap on qualified wages to $10,000 per employee per calendar quarter
- Extending eligibility to certain government employers – IRC Section 501(c)(1) organizations exempt from tax, colleges, universities, or entities whose principal purpose or function is providing medical or hospital care
Additionally, retroactive to enactment of the CARES Act, and subject to certain rules to prevent double benefits as well as abuse with respect to moving employees, the CAA permits eligibility for the credit if a taxpayer has received a PPP loan.
Families First Coronavirus Response Act (FFCRA) payroll tax credits
The CAA extends availability of the payroll tax credits provided under the FFCRA for paid sick leave and paid family leave mandated under that legislation. As originally enacted, these mandated types of paid leave apply from April 1, 2020, until Dec. 31, 2020, and an employer could elect to receive a related refundable and advanceable payroll tax credit for each type of mandated paid leave. See an earlier article about the FFCRA for more details.
Even though the CAA does not extend the mandates for such paid leave, for the first quarter of 2021 the CAA permits an employer the related payroll tax credit if the employer provides any such paid leave as though the mandates were in effect until March 31, 2021.
