Six Misconceptions About Employee Retention Credit Eligibility Are Incorrect

There are many things that qualify when you calculate your Employee Retention Tax Credit. These include wages and compensation that are subject to FICA taxes as well as qualified health plan expenses. You must pay qualified wages after March 12, 2020, and qualify for that credit through September 30, 2021. However, the recovery startups businesses actually had until 2021.

The exact expiration dates are not known but they fall somewhere between September 30, 2020, and December 31, 2020. The Infrastructure Bill ended ERTC January 1, 2022 to allow recovery startups businesses. You cannot, however, use wages paid to your PPP loan cancellation to your ERTC. If you haven’t yet applied to forgive your PPP loan, you might want to apply non-payroll expenses so that you can get the maximum wages you can use to claim your ERTC. There is a safe-haven that allows companies, based on their past quarter gross receipts, to calculate eligibility.

The Consolidated Appropriations Act also expanded the Employee Retention Credit in December 2020. The Infrastructure Investment and Jobs Act repealed the ERC retroactively on September 30, 2021, for most employers. While the firm maintains joint liability, your case may be referred home.treasury.gov ERC PDF locally or to trial counsel for primary processing. Past results cannot or do not guarantee a similar outcome in future matters, even if a lawyer or law company is retained.

• The IRS has many methods to calculate qualified expenses for health plans, depending on the circumstances.
• Congress then amended the ERTC in December 2020 in the Coronavirus Response and Relief Supplemental Appropriations Act , and then in March 2021 in the American Rescue Plan Act , so more companies could take advantage of the credit.
• The amount for qualified wages in respect of any employee for all calendar years 2020 cannot exceed $10,000
• After March 31st 2023, sunset of the ERC begins. Each quarter you lose an ERC Credit.

If your business was shut down by COVID-19, including governmental compulsory shutdowns, or a significant decline in gross revenues, and you’re not sure if you can claim this tax credit for it, you’re in luck! Our tax team has answered six frequently asked questions after speaking with hundreds of clients. This will help business owners understand the process. The ERC is claimed quarterly, so the eligibility of an employer for the credit as well as the credit amount will differ by quarter. As per IRS FAQ 39, let’s say that an employer’s gross receipts were $100,000 (or $190,000) and $230,000 respectively in the first, second, and third quarters of 2020.

The IRS states that if employers do insufficient funds to cover the credit, they may receive an advance payment by submitting the Form 720, Advance Payment of Employer Crédits Due to COVID-19. Qualifying employers regardless of size can count any wages received by an employee during a qualifying calendar quarter as qualified wage. Since the ERC expired at the end of 2021, the only way to apply for the ERC going forward is to file an amended Form 941-X for a previous quarter in which you were eligible for the payroll tax credit but didn’t claim it.

How To Apply For The Employee Retention Credit

For 2021 credits, an eligible employer is deemed to be a small employer if they have 500 or fewer average full-time employees. An eligible employer is considered a small employer for 2020 credits if they have 100 full-time employees or less. Stephanie Cornejo, CTI’s Credits & Incentives Practice Manager, is responsible for primary oversight of operations as well as overall practice development. She is committed to identifying and maximising federal, state, and local tax credits that support job creation, capital investment, and new business development. An employer is eligible if gross receipts in a quarter fall below 50 percent of those of the same calendar year 2019.

Employers can still receive the Employee Retention Credit Credit up to $26,000 per qualified employee. Employers that paid wages to qualified employees from March 13, 2020 to September 30, 2021 will be eligible for this valuable, refundable credit. (See our 2020 vs.2021 comparison chart). Even if a company was granted a PPP loan to finance its operations, the ERTC may still be used. Startups that have been in operation since February 15, 2020 are eligible to receive up to $100,000 credit on wages paid between July 1, 2021 and December 31, 2021.

How Do I Know If My Company Qualifies For The ERC?

The Employee Retention Credit is a refundable credit that was created to allow small businesses to continue paying employees during the COVID-19 pandemic. ERC is still available for eligible employees by business owners. It can be claimed for all 2020 and a portion of 2021 on tax returns filed in 2022. They can file a Form 94X (Adjusted Employee’s Quarterly Federal Income Tax Return or Claim For Refund) within three years of filing or two years after they have paid, whichever comes first. Errors or mistakes found can still be reported using this form as well. For unclaimed credits, claims can be filed for 2020-April 15, 2024, and 2021-April 15, 2025.

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It is also important to mention that there may be connection criteria that limit loan eligibility for businesses that are widely owned. If a company’s gross revenues drop significantly, it is eligible. A significant reduction of gross revenues in 2020 can be defined as a fall of at least half a calendar month in comparison to the same period in 2019 Employers were also first prohibited from obtaining a PPP loans and claiming ERTC.

What Are The Next Steps To Determine Your 2020 Potential Erc?

Congress passed the Coronavirus Aid, Relief and Economic Security Act’s employee retention Credit in March 2020 in just 12 Days with no other legislative history. The IRS has yet to issue formal regulatory guidance and will not. This leaves taxpayers with some unanswered and gray areas. The initial confusion about eligibility for the employee retain credit was further exacerbated when subsequent legislative changes to CARES Act resulted in an eligibility matrix employers could use to navigate without much guidance. Assume the exact same facts as Example 1, but the local Church received a PPP Loan on July 1, 2019. The church used all its loan proceeds to pay for eligible employee costs incurred in the third quarter 2020. There were no loan proceeds left to pay for eligible costs in 2020’s last quarter.

If your business recovers from a substantial fall in gross receipts and you don’t claim the credit, it is possible to claim it in 2022. [newline] Businesses have three years from the program’s end to review wages paid after March 12, 2020 to determine their eligibility. ERC is a refund in the form of a grant and can return up to $26,000 per employee ($11,000 is the average) depending on wages, health care expenses, and other personnel costs business owners have already paid through the qualifying period. Qualified wages are wages that are subject to withholding federal income tax, as well as the employer’s share of social security and Medicare taxes.

(For this example, we are assuming the facts and circumstances indicate that the dentist’s operations were not considered to be partially suspended AFTER the office reopened). The entire first and second quarter wages would not be eligible. If a business was established in 2019, the quarter that the business started should be used to determine the quarterly decline. The decline continues until the business is a year old. For example, a new business that started in the second quarter of 2019 would use that quarter as the base to determine revenue decline for either first quarter 2020 or second quarter 2020.

How Much Is Employee Retention Credit

RRF or SVOG recipients are not allowed to treat the payroll expenses they incur in connection with these programs as qualified wages for ERC in third quarter 2021. Guidance for employers concerning retroactive terminations of employee retention credits for wages paid Many business owners may find it difficult to determine eligibility due to the changes in the tax laws surrounding the ERC. It’s also hard to know which wages are eligible.

 

If your company qualifies, they will make sure you get the most credit possible based on your financial facts. During the pandemic some restaurants’ business divisions performed well, and others did poorly. Even if more than 500 employees are employed, you may be eligible to be a Severely Distorted Employer if a loss of at least 90% occurs. Another possibility is that economic activity was halted due to a COVID-19-related government order restricting travel, conducting business and gathering.

Contact us today to get a no-risk assessment of your company’s eligibility for ERTC. In Similar news: Read this CleanLink article about employee retention tips.

Likewise, if the employee is included on the Work Opportunity Tax Credit, they can’t be retained on the Employee Retention Credit. The hardest-hit companies are generally those employers whose gross receipts in the quarter were less that 10 percent of what it was in any comparable quarter in 2020 or 2019. This applies only to businesses that aren’t in recovery.

The ERC is a completely refundable tax credit that qualifying firms can use to offset some employment taxes, so you don’t have to pay it back. For most taxpayers, the refundable credit is generally greater than the income taxes paid during the credit terms. COVID-19 offers many tax relief and cash flow options. Companies should speak to their tax and financial professionals in order to find the best solutions for their situation and company needs. Can an Eligible Employer paying qualified wages fund its payments of qualified wages before receiving the credits by reducing its federal employment tax deposits? The CARES Act provides incentives for businesses to keep employees on the payroll through the Employee Retention Credit.

What is the Employee Retention Credit (ERC)

 

If the same dentist had a decline of more than 50% in its second quarter 2020 revenues, compared to 2019, the entire second half of the wages would be eligible. Although, the dentist could begin seeing regular patients on May 18, 2020, so the quarterly revenue decline causes the entire quarter’s wages to be eligible. A second quarter decline means that dentists would automatically be eligible at the ERC for the third quarter. The dentist would not be eligible for ERC starting the fourth-quarter if third-quarter revenues fell by less than 20% from the third quarter 2019. It is a tax credit that the government offers to employers who have experienced financial hardship because of COVID-19.