Breaking Down The Changes To The Employee Retention Tax Credit In The New COVID Relief Bill, Part 2
With the Consolidated Appropriations Act, 2021 (the Act) finally signed into law, we can start to take a deep dive into the more impactful changes found within the 5,500-page piece of spending and stimulus legislation. We may have jumped the gun a bit in publishing Part 1 of this two-part series on the expanded Employee Retention Credit (ERC) before the law was finalized, but with the ink now dry on the President’s signature, we can confidently move on to the sequel.
But first, a bit of required reading…
Naturally, before we get into Part 2, you’ll want to read Part 1, which deals with the changes made by Section 206 of Division NN of the Act. These changes were RETROACTIVE to March 12, 2020, and do NOTHING to change the computational aspects of the credit. Rather, Section 206 opens the ERC – for 2020 AND 2021 – to borrowers of a Paycheck Protection Program (PPP) loan, and walks through, however clumsily, how a PPP borrower retroactively claims the credit for 2020.
Then, you’ll want to devote some time to reading this. It’s a detailed analysis of the original ERC as enacted by the CARES Act, and walks through the computational aspects of the credit as they existed before last week, and as they CONTINUE to exist for 2020. This analysis will be vital to your understanding of the changes made to the ERC FOR 2021 ONLY by Section 207 of the latest relief bill. It is these changes that are the subject of this Part 2.
Done with all that reading? OK, then let’s move on…and we’ll do exactly as we did in Part 1: break down a section of the new Act – this time Section 207 – paragraph by paragraph.
Extension of the ERC Program
Section 207 doesn’t wait long to do what it’s designed for: Section 207(a)(1) extends the ending date for the ERC from December 31, 2020 to June 30, 2021.
As we discussed in Part 1 – and as I repeated above, but cannot stress enough — the purpose of Section 206 of the Act was to expand the eligibility rules for the ERC to include borrowers of a PPP loan. Those changes – and only those changes – were retroactive to March 12, 2020. The computational changes we will discuss throughout Part 2 only apply from January 1, 2021 through June 30, 2021; they are NOT retroactive to 2020.
