CAA, 2021 Provides Clarity that Credit Unions are Eligible for Employee Retention Credit

The Consolidated Appropriations Act (CAA), 2021, signed into law on December 27, 2020, extends the Employee Retention Credit (ERC), offered by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, through June 30, 2021. The CAA, 2021 also expands the ERC and makes some technical corrections.

Previously, under the CARES Act, credit union ERC eligibility was a gray area since the Internal Revenue Code (Code) defines federal credit unions as an instrumentality of government.  

Effective January 1, 2021, a provision in the CAA, 2021 allows certain government instrumentality entities, including federal credit unions, and other 501(c) organizations to be eligible for the ERC, if they are able to meet other eligibility criteria (e.g. loss of income). State-chartered credit unions are not considered government instrumentalities and therefore, are also eligible for the ERC, if they meet the other eligibility criteria. 

Other ERC changes made by the CAA, 2021 include:

• An increase in the credit rate from 50% to 70% of qualified wages;
• An increase in the limit on per employee creditable wages from $10,000 for the year to $10,000 for each quarter;
• A reduction in the required year-over-year gross receipts decline from 50% to 20%;
• A safe harbor allowing employers to use prior-quarter gross receipts to determine eligibility;
• An increase from 100 to 500 in the number of employees counted when determining the relevant qualified wage base; and
• Rules allowing new employers who were not in existence for all or part of 2019 to be able to claim the credit.

Additionally, the CAA, 2021 makes the following changes, retroactive to the effective date of the CARES Act:

• Provides that employers who receive PPP loans may still qualify for the ERC with respect to wages that are not paid with forgiven PPP proceeds;
• Clarifies the determination of gross receipts for certain tax-exempt organizations; and
• Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance.

We recommend that you seek the advice of your tax consultant or attorney for eligibility of the ERC.

CrossState’s New FFCRA Extension Webinar and Materials

• Click here to view New FFCRA Extension Webinar with Pillar + Aught
• New FFCRA Extension Handout – Associated tax credits begin on page 4 of the handout