Employee Retention Credit Extended Through Dec. 31, 2021

(Editor's Note: This headline for this story and the article were corrected to reflect that the Employee Retention Credit was extended to Dec. 31, 2021, not June 30, 2021, with the passage of the American Rescue Plan Act of 2021.)

The Employee Retention Credit (ERC) was extended and expanded in March to go through Dec. 31, 2021, as part of the American Rescue Plan Act of 2021 (ARPA). Originally, the ERC was enacted in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Originally, the ERC was a refundable payroll tax credit granted for full-time employees who were retained from March 13, 2020, to Dec. 31, 2020, during the temporary business shutdowns ordered to stem the spread of COVID-19. The Consolidated Appropriations Act of 2021 (CAA) then expanded the ERC, partly by retroactively allowing employers (even those who had received a Paycheck Protection Program loan) to claim the ERC. ARPA then extended the ERC further. 

Under the CARES Act, the amount of credit was 50 percent of qualified wages paid to the employee plus the cost to provide health benefits. Under the CAA, eligible employers could claim a refundable tax credit against the employer share of Social Security tax equal to 70 percent of the qualified wages they pay to employees after Dec. 31, 2020, through June 30, 2021. 

Now, the ARPA allows employers to retain 70 percent credit for qualified wages paid between July 1, 2021, and Dec. 31, 2021, including the cost to provide health benefits. 

The expansion also lowers the threshold for businesses to participate, requiring only a 20 percent decrease in gross receipts. (Originally, a 50 percent decrease was required.)

Now, the maximum qualified wages are $10,000 per quarter. Also, small employers are now considered those who employ 500 full-time employees rather than 100, and small employers can now claim all wages paid during the eligibility timeframe. 

The CARES Act expansion had already allowed employers who received Paycheck Protection Program loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.

“When the CARES Act was originally passed, a restriction existed that prevented companies that had received PPP to also claim ERC,” said Adam Taplinger, strategic advisor at Tax Credit Co. “Many fitness club owners erroneously believe this restriction is still in effect, but this prohibition was rescinded in December of 2020.”

Eric Killian, founder of The Fitness CPA, told Club Industry: "The Employee Retention Credit is the most important thing fitness business owners can do for their businesses in 2021 and is worth tens of thousands of dollars per location." 

Killian will present a session on the topic at Club Industry's free Future of Fitness virtual event June 16-17. The session, “The Employee Retention Credit: How to Qualify, Maximize, Calculate and Implement the Secret Strategies That Are Worth Tens of Thousands of Dollars to Gym and Fitness Studios,” will occur at 9 a.m. ET on June 16 and will offer more details on this complicated topic. Register for Future of Fitness here.