On February 27, 2021 the House of Representatives passed the American Rescue Plan Act of 2021 (ARPA). One of the items included in this bill is an extension of the Employee Retention Credit (ERC). The ERC is a refundable payroll credit that is currently set to expire in June 2021. The ARPA proposes extending the ERC period through December 2021. The bill will next go to the Senate where it is expected to be approved using the budget reconciliation process. If the bill is signed into law this would be great news for all qualifying businesses, especially those in the construction industry.
While companies engaged in residential construction may have seen increased demand, those who work in the nonresidential construction sector are more likely to have experienced a decline in the volume of jobs available. According to Ed Zarenski’s “2021 Construction Economic Forecast”, new jobs started in 2020 declined 24% for nonresidential buildings and 14% for non-building construction work. This is anticipated to result in reduced construction spending and jobs over the next two years. A reduction in construction spending into 2021 would make construction companies prime candidates for the extended ERC.
The ERC currently allows employers to claim a refundable payroll tax credit for 70% of eligible wages and health insurance costs for up to $10,000 per employee, per quarter for the first two quarters in 2021. Eligible employers include businesses that have full or partial restrictions due to a government public health order. It also includes businesses with a 20% or greater reduction in gross receipts for a quarter of the year in 2021 as compared to the same quarter in 2019 (for example, Q3 2021 as compared to Q3 2019). Businesses with fewer than 500 employees may include wages and health benefits when calculating the credit regardless of whether the employees were providing services. Businesses with more than 500 employees may only include wages and benefits paid to employees who were not providing services (i.e. employees who continued to receive compensation or health benefits while furloughed) when calculating the ERC.
If passed, the ARPA would extend the aforementioned rules for calculating the ERC through December 2021, giving employers who may see more long-term negative effects of the pandemic an additional opportunity to utilize the ERC.
For additional information or assistance with the Employee Retention Credit, reach out to any of your contacts at Schneider Downs or contact Matthew Werner at [email protected] or Ross Alessandro at [email protected].
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.