As part of the American Rescue Plan Act of March 2021, there has been an extension, as well as an expansion to who can apply for the Employee Retention Credit (ERC). Section 3134(n) of the code extends the credit to include wages paid after June 30, 2021 and before January 1, 2022.
The expansion will now allow eligible businesses that opened during the pandemic to receive stimulus funding under the ERC as a Recovery Startup Business. Further clarification released in IRS N-2021-49 on August 4th 2021 has provided details on how the credit can be claimed, who can claim it, and potential limitations.
There are three basic qualifiers in order to be considered a “Recovery Startup Business”:
- An employer that began carrying on any trade or business after February 15th, 2020
- The average annual gross receipts of the employer did not exceed $1 million in 2020 or 2021, and
- The employer does not qualify as an eligible employer due to a full or partial suspension of operation or a decline in gross receipts.
The addition of the recovery startup business as a new category of eligible employer is only available for quarters 3 & 4 of 2021, with a limit of $50,000 per quarter.
Although, there are some things to keep in mind as you look into this option. You need to have one or more employees that you have been and will be paying through the last half of 2021. The ERC maximum credit for 2021 is 70 percent of qualified wages up to $10,000 per employee, per quarter. There are also limitations on the wages paid to relatives and owners of certain types of businesses.
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