Amendments to COVID Related Tax Laws
The law enacted on December 27, 2020 has made changes to certain provisions of the CARES Act which provided tax relief to employers affected by the pandemic. The law has also extended the deadlines for employees to pay back taxes which were deferred taxes.
Payback of Deferred Taxes
A presidential memorandum issued on August 8, 2020 permitted a deferral of the withholding, depositing, and payment of the withheld portion of social security taxes and railroad retirement taxes. The deferral was applicable for wages/compensation paid during the period of September 1 to December 31, 2020, and required that the deferred taxes be paid back by April 30, 2021. See
The Consolidated Appropriations Act signed into law on December 27, 2020 extended the repayment period during which the deferred taxes can be repaid. Employees can now repay these taxes ratably through December 31, 2021. Since December 31, 2021 is a legal holiday, payments made by January 3, 2022 will be considered by the IRS to be timely made. Refer to IRS Notice 2021-11 for more information. https://www.irs.gov/pub/irs-drop/n-21-11.pdf
Employee Retention Credit
The CARES Act provided for an employee retention credit which was designed to provide employers an incentive to keep employees on payroll. See: https://magdaabdogomezlaw.com/employee-retention-credit/ At the time the law was passed, the credit applied to wages paid after March 12, 2020 and before January 1, 2021. The Consolidated Appropriations Act signed into law on December 27, 2020 made a number of changes.
1. The credit has been extended through June 30, 2021.
2. Eligible employers can now claim a refundable credit against the employer share of the social security tax equal to 70% of the qualified wages paid to employees after December 31, 2020 through June 30, 2021.
3. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021.
4. The maximum employee retention credit available is $7,000 per employee per calendar quarter for a total of $14,000 in 2021.
5. The definition of qualified wages was changed effective January 1, 2021 to provide that:
a) For an employer that averaged more than 500 employees in 2019, qualified wages are generally those wages paid to employees that are not providing services because operations were fully or partially suspended or due to the decline in gross receipts.
b) For an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.
6. Effective January 1, 2021 , employers are eligible for the credit if they operate a trade or business during January 1, 2021 through June 30, 2021 and experience either:
a) A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19 , or
b) A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).
Employers who were not in existence in 2019 can use the corresponding quarter in 2020 to measure the decline in gross receipts.
7. For the first and second quarters of 2021 employers may elect to measure the decline in gross receipts using the immediately preceding calendar quarter compared to the same calendar quarter in 2019. Future guidance on making the election will be provided by the IRS.
8. Employers who receive PPP loans can claim the employer retention credit for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan. This change is retroactive to March 27, 2020, the date of the enactment of the CARES Act.