The most under-utilized COVID-19 relief opportunity for businesses…
Employee Retention Tax Credits
Hint: you probably qualify
If you're looking for our ERTC Excel Calculator, see below for access link.
Several COVID-19 relief programs have dominated the news, from the PPP to Economic Impact Payments to State grants, such as the NH Main St. Relief Program or the Massachusetts sector-specific grant program. While these programs continue to offer tremendous relief for U.S. businesses, there are other equally, if not potentially, more impactful relief programs available. One such program is the Employee Retention Tax Credit (ERTC), which was established under the CARES Act, but substantially changed by the Consolidated Appropriations Act (the Act). The Act, which contained the latest COVID-19 relief bill, established the heavily publicized PPP Second-Draw, $600 EIP stimulus checks, among many other important programs.
Continue reading to learn how to get another $14,000 per employee THIS YEAR.
These are major impactful changes that will add a massive level of assistance to your business.
Prior to the Act, most U.S. businesses participated in the PPP and as a result were precluded from taking the ERTC, since the CARES Act rules did not allow for U.S. business to claim the ERTC, while also participating in the PPP. However, everything changed when congress passed the Act, which changed the rules to allow PPP borrowers to also claim the ERTC, if certain eligibility criteria are met.
So, what are the eligibility rules? How much can you claim as a tax credit? How soon can you benefit from this program? And how do you get started? We’ll answer those questions for you.
First, a brief overview of the ERTC, including the general rules, limits and eligibility criteria.
The ERTC is a fully refundable tax credit for employers equal to a percentage of qualified wages (including allocable qualified health plan expenses) that eligible employers pay their employees. The ERTC is designed to encourage employers to retain their workforce during periods of disruption. Under the CARES Act, the ERTC is equal to 50% of qualified wages paid after March 12, 2020, and before Jan. 1, 2021. The CARES Act provides that the maximum amount of qualified wages taken into account with respect to each employee for all 2020 calendar quarters is $10,000, so that the maximum credit for an eligible employer for qualified wages paid to any employee during 2020 is $5,000.
In general, eligible employers for the purposes of the ERTC are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:
Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or Experience a 50% decline in gross receipts during the calendar quarter.
As if the $5,000 tax credit per employee for 2020 under the CARES Act was not enough, Congress, under the Act, extended the benefit through Q2-2021 and substantially improved the maximum benefit. Here is how the Act modified the ERTC for 2021:
- Increased the amount of the credit rate from 50 to 70% of qualified wages;
- Expanded eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility;
- Increased the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter;
- Increased the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees;
- Removed the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers;
- Allowed businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year; and
- Provided rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit.
The maximum additional amount of per-employee qualified wages is $20,000 during the first two quarters of 2021, which would produce an additional per-employee ERTC of $14,000 during 2021. This is only the beginning of the additional benefits, since there are potential retroactive benefits to also consider.
How to take action:
Though the rules may seem a bit overwhelming, we are confident that with a bit of assistance from us, you can quickly and efficiently pull together the required supporting documents, calculations and instructions for your payroll processer to modify, change or amend your quarterly payroll tax filings in order to receive immediate relief from the ERTC. Some employers will need to complete Form 7200 to claim advance payment if current payroll tax deposits are not sufficient to offset the credit. As mentioned earlier, between 2020 and the end of the second quarter 2021, U.S. businesses stand to gain up to $19,000 in ERTC – per employee – if all qualifications are met and the maximum amount of qualified wages are paid during each period.
As previously mentioned, the ERTC program has not received as much attention as other COVID-19 relief programs, but the potential impact could be substantially greater if properly planned and executed. There also some pitfalls that certain businesses should steer clear of and we can help you navigate around those issues.
Start Right Now:
We encourage you to take action, you should start today. Here’s a good place to get the ball rolling…
I HAVE already filed a 941.
- You will be filing an amended 941
I have NOT yet filed a 941.
- You will be filing a form 7200
Whichever form you will be filing, both require the following next steps: (This is the summary version, see ADC’s ERTC Excel workbook for further details below)
- Determine your eligibility by reviewing the eligibility criteria. As part of this process, you will need to determine whether you meet one of the two eligibility tests: were you affected by governmental imposed business limitation and/or revenue reduction of 50% or greater during any quarter of 2020? IRS link for more info and FAQ’s – https://www.irs.gov/newsroom/new-law-extends-covid-tax-credit-for-employers-who-keep-workers-on-payroll
- Request to download our ERTC workbook and follow the step-by-step instructions to gather the information required to complete the calculations.
- Using the reports gathered, begin to input the information from the reports into the appropriate data entry cells.
- Next, Click to schedule an appointment with us to discuss your results and to determine the next course of action.
As always, we are here to help and please contact us with questions. We understand this may be a task you could need help with, we are ready to execute this for you.
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ADC Tax Services
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SUCCESS, your download will start momentarily. If not, visit: https://adccpa.com/wp-content/uploads/2021/02/2020_ERTC-Workbook.xlsx
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