March 11, 2021 – President Biden Signs the American Rescue Plan Further Extending the Employee Retention Credit
President Biden signed the American Rescue Plan Act on Thursday, March 11. The final legislation makes a number of changes to the Employee Retention Credit (ERC), including an extension of the program through the remainder of 2021 and specific financial aid to restaurants.
The following changes only apply to wages paid after June 30, 2021, and before January 1, 2022.
- The ERC has been available to businesses that were either suspended due to government orders or experienced a significant decline in gross receipts. The new bill adds a third, albeit limited, the pathway to eligibility. Businesses defined as “Recovery Startup Businesses” could receive up to $50,000 in refundable credits per calendar quarter even if they don’t meet either of the preceding tests. A recovery startup business is a business started after February 15, 2020, and “for which the average annual gross receipts … for the 3-taxable-year period ending with the taxable year which precedes such quarter does not exceed $1,000,000.” This is not entirely clear. Apparently, it means that if gross receipts earned between when the business started in 2020 and the end of its tax year, divided by three are less than $1 million, the business will be eligible even without a suspension from a government order or reduction in gross receipts.
- The new bill would allow “severely financially distressed employers” to include all wages as qualified wages irrespective of the number of full-time employees they had in 2019. To be considered a severely financially distressed employer, the business must demonstrate a more than 90% reduction in gross receipts when compared to 2019. Since this change is only applicable to the third and fourth quarters of 2021, that means it applies to businesses whose gross receipts in Q3 2021 are less than 10% of what they were in Q3 of 2019. This change is apparently in response to this interesting letter signed by nine U.S. Senators.
- The bill would also extend the normal statute of limitation for taxpayers to amend their returns to claim this credit from three to five years, but only for the portion of the credit that relates to the final two calendar quarters of 2021. Of course, that would also extend the time that IRS would have to audit claims.
The new law also provides specific financial aid to restaurants and other food and beverage establishments in the form of the “Restaurant Revitalization Fund.” The new grant program has similarities to the PPP and will also be administered through the Small Business Administration. It allows restaurants or bars that are not publicly traded, have fewer than 20 locations and experienced a loss in revenue to receive a grant up to the amount of pandemic-related revenue loss they experienced. The new grants have interaction rules with the PPP and the ERC.