The American Rescue Plan Act (ARPA) of 2021 extended the CARES Act Employee Retention Credit (ERC) through December 31, 2021 and expands the ERC to include wages from July 1, 2021 to December 31, 2021 (the third and fourth quarters of 2021).
A tax-exempt organization may be eligible for a refundable credit if it suffered a significant decline in gross receipts and paid qualified wages that are not otherwise taken into account as payroll costs in connection with a covered loan (a first- or second-draw PPP loan), a shuttered venue operators grant or a restaurant revitalization grant.
For 2020, a tax-exempt organization experienced a significant decline in gross receipts if the gross receipts for the 2020 calendar quarter are less than 50 percent of its gross receipts for the same calendar quarter in 2019. The credit equals 50 percent of qualified wages including allocable qualified health plan expense limited to $10,000 per employee per year for a maximum credit of $5,000 per employee.
For 2021, the metrics for a significant decline in gross receipts has been reduced to a 20 percent decline in gross receipts for a single 2021 quarter as compared to the same calendar quarter in 2019. Furthermore, for 2021 there is an alternative test that allows you to use the previous quarter compared to the same quarter in 2019 in determining the significant reduction in gross receipts. The credit equals 70 percent of qualified wages including allocable qualified health plan expense limited to $10,000 per employee per calendar quarter for a maximum credit of $7,000 per employee per quarter.
A tax-exempt organization may also qualify for ERC if they had a full or partial (defined as anything more than a 10 percent reduction) suspension of business operations due to a governmental order. As a point of reference, New York’s state of emergency capacity limits expired June 24, 2021. Similarly, New Jersey ended capacity limits on restaurants, stores and offices on May 19, 2021.
The above synopsis is meant only as a general guide to ERC eligibility and is not meant as specific tax advice. We urge each of you to reach out to your Friedman advisor to discuss your specific circumstances.