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Senate Bill Would Expand Employee Retention Credit

Legislation
New legislation would significantly expand the existing credit to cover the wages and benefits—including 401(k) contributions—of employees of businesses affected by COVID-19 until the pandemic subsides, but the bill does come with some strings attached.
 
Introduced May 21 by Sen. Mark Warner (D-VA) along with eight original cosponsors, the Paycheck Security Act (S. 3793) would amend the CARES Act to create a national paycheck security program whereby the federal government would help cover the payroll expenses for workers who have been furloughed or laid off because of the coronavirus.

“Right now, nearly 39 million Americans are out of work due to the coronavirus. This is hitting working class folks particularly hard, with 40% of all workers making under $40,000 out of work right now,” Sen. Warner stated in introducing the legislation. “We need to be thinking big and helping people who have lost their jobs.” 
 
S. 3793 would expand the existing employee retention tax credit (ERTC) with a refundable tax credit big enough ($90,000 annually per employee) to rehire and pay laid off and furloughed workers and restore their health care benefits. It also would provide small and mid-sized businesses with the funds they need to pay for rent, mortgages, utilities and other operating costs until they can reopen safely and sales begin to recover.  
 
Employee Retention Credit
 
The ERTC, enacted under the CARES Act, is designed to encourage businesses to keep employees on their payroll and is viewed as an alternative relief mechanism for those businesses unable to take advantage of the Paycheck Protection Program (PPP). The amount of the credit is 50% of qualified wages paid up to an annual limit of $10,000, which equals a maximum credit amount of $5,000 for each employee for the year.

Wages paid between March 12, 2020, and Jan. 1, 2021 are eligible, and they are not limited to cash payments. Qualified wages also include contributions to 401(k) plans, as well as a portion of employer-provided health care costs.
 
Eligible employers are employers who operate a trade or business and has:
 
  • fully or partially suspended operations because of a government order due to COVID-19; and/or
  • experienced a significant decline in gross receipts in a calendar quarter compared to 2019.
An employer is considered to have a significant decline in gross receipts for the period beginning with the first calendar quarter in 2020 for which its gross receipts are less than 50% of gross receipts from the same calendar quarter in 2019. The decline is considered ended with the earlier of Jan. 1, 2021 or the first calendar quarter after the quarter for which gross receipts are greater than 80% of gross receipts for the same calendar quarter in 2019. 
 
Qualified wages are based on the business’s average number of full-time employees in 2019. Specifically:
 
  • Small employers with 100 or fewer employees may receive the credit for wages paid to employees whether or not they are providing services to the employer.
  • Large employers with more than 100 employees may only receive the credit for wages paid to employees for time the employees are not providing services to the employer.
If an employer is eligible due to a full or partial suspension of operations, only wages paid while operations are suspended count as qualified wages.
 
Eligible employers may not receive both the ERTC and a PPP loan that is authorized under the CARES Act. Eligible employer can, however, receive both the tax credit for qualified leave wages under the Families First Coronavirus Response Act and the ERTC, but not for the same wages.
 
Additional information on the existing ERTC can be found here.