This information is published in partnership with Eide Bailly, a sponsor of Startup Sioux Falls.

The COVID recession isn’t over for everyone. Thankfully, the tax law has a lifeline in place.

Businesses still struggling to return to 2019 revenue levels can take advantage of a refundable tax credit of up to $7,000 per-employee, per-quarter

That tax credit could add up quickly for businesses. For a qualifying company with 50 employees, it could mean as much as $1.4 million in benefits for 2021.

The employee retention credit was initially enacted as a tax credit of up to $5,000 per employee in 2020. It applied to taxpayers who witnessed a 50 percent decline in revenue for a 2020 quarter compared to the same quarter in 2019.

As a result of this new legislation, only a 20 percent decline in quarterly 2021 gross receipts is required compared to the same quarter in 2019, and the maximum credit is increased to $7,000 per quarter.

Businesses that underwent a shutdown or partial suspension of operations by government order because of COVID may also qualify.

This tax credit is obtained on quarterly payroll tax returns. Because it is refundable, the IRS will issue employers a check for any amount of credit in excess of the quarterly payroll taxes.

Additional key enhancements to the credit for 2021 include:

  • The 2020 credit was limited to employers with up to 100 full-time-equivalent employees (FTEs). That increases to 500 FTEs in 2021.
  • Larger employers with 90 percent declines in employment for the 3rd or 4th quarters of 2021 compared to the comparable 2019 quarters can qualify regardless of size.
  • Some governmental agencies qualify in 2021.
  • “Recovery Startup Businesses” which opened after February 15, 2020 and have average gross receipts under $1 million can qualify for the credit without meeting a gross receipts test. 
  • Employers can use prior quarter gross receipts for measuring qualification for the subsequent 2021 quarter.

For more information, contact Elliot Hitt at [email protected]