Why the employee retention credit is an overlooked stimulus issue
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D.C. remains deadlocked on the next stimulus package, days after extended unemployment benefits ended and days before PPP is set to expire.
Where it stands: One unresolved issue that hasn't gotten enough attention is a proposed expansion of the employee retention credit, which could have a significant impact for companies that have experienced severe revenue declines.
The backdrop: The CARES Act established the initial version, a refundable payroll tax credit that could cover up to $5,000 per employee, for businesses that had suffered at least 50% revenue loss.
- Caveat #1: If a company received a PPP loan, it wasn't eligible.
- Caveat #2: If a company had more than 100 employees who remained working full time, including remotely, it wasn't eligible.
- Caveat conclusion: For most companies, this credit wasn't too valuable.
What's new: Both new stimulus plans — HEROES Act (D), HEALS Act (R) — are much more generous.
- HEROES increases the credit to up to $36k per employee (or up to 80% of wages paid per retained employee), with sliding-scale revenue eligibility for companies with revenue drop of between 10% and 50%. It increases the limit on working employees to 1,500.
- HEALS increases the credit to up to $30k per employee (or up to 65% of wages paid per retained employee), with the revenue decline threshold cut to 25%. It increases the limit on working employees to 500.
- Neither proposal restricts companies that received PPP loans, although they're silent on companies that participate in a possible PPP extension.
The bottom line: There are still partisan differences, but both sides are moving in the same direction on this, which suggests more flexibility than on thornier issues like school funding and liability protections.
