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What You Need to Know About Qualifying for the Employee Retention Tax Credit

In the wake of the COVID-19 pandemic, the government has made several major changes to the Covid Relief Legislation that could help you receive significant funds to help your business. Many of these changes reverse information that was previously put out to the public and some of these changes create entirely new funds that are easier to qualify for. Unfortunately, the details can seem a bit complicated.

That’s why we’re breaking down the facts on the Employee Retention Tax Credit so you can figure out if your business qualifies—and what that really means.

Employee Retention Credit

The Employee Retention Credit (ERC) was created as part of the CARES Act to encourage businesses to continue paying employees by providing a credit to eligible employers for wages paid to eligible employees. The ERC applies to individuals employed on a full-time, part-time, or another basis if their employer meets the necessary requirements.

ERC for 2020

For 2020, ERC is a refundable tax credit equal to 50% of up to $10,000 in qualified wages (i.e., a total of $5,000 per employee, for the 2020 year) paid by an eligible employer whose operations were suspended due to a COVID-19-related governmental order or whose gross receipts for any 2020 calendar quarter were less than 50% of its gross receipts for the same quarter in 2019.

Previously you could not apply if you had received funding on a Paycheck Protection Program (PPP) loan. However, the government has now revised that rule so you can apply (retroactively) for these credits even if you took a PPP loan.

ERC for 2021

For 2021, congress has made it easier to qualify for ERC by requiring a revenue reduction of only 20% (compared to the same quarter of 2019). If your gross receipts for any 2021 calendar quarter were less than 80% of your gross receipts for the same quarter in 2019, you could be eligible for a refundable tax credit of up to $7,000 per employee per quarter. That means if you have ten employees, you might be able to receive a payroll tax credit of up to $280,000 for 2021.

More recent legislation further expands the ERC to include wages for through December 31, 2021. 

Eligibility Summary: Which Employers Qualify?

An Eligible Employer (including all members of a control group) must either: 

  1. Have had their operations fully or partially suspended due to orders from a governmental authority OR
  2. Have suffered a significant decline in quarterly gross revenue as measured against 2019
  • 50% decline for 2020
  • 20% decline for 2021

*A governmental employer is not eligible.

Getting Your ERC:

The paperwork requirements may seem daunting, but you could be eligible for a substantial amount of money. We are hearing that many CPA’s and payroll companies are not wanting to do this work, but there are companies that are willing to help you apply for these funds. Many of these companies will work on a contingency basis and only charge a fee if they help you recover funds.

If you think your business might qualify for ERC, but you need some help figuring out where to start, you can schedule a free consultation with one of our employee management experts.

Frequently Asked Questions:

Can I still get ERC if I received PPP funds?

Yes you can. If you are applying for ERC retroactively from 2020 you will have to file an amended 941 (the 941X). The money from the PPP loan that was used for payroll will have to be used to reduce your gross payroll numbers before applying. Some businesses are restating the use of their PPP loan to ensure they can maximize their ERC. We advise you get professional assistance if you intend to do this.

How do I know if I am eligible?

There are two ways to be eligible and you only need to meet one criteria—the eligibility thresholds in 2021 got easier

  1. A government mandate required that you shut down or partially suspend operations. OR
  2. Your revenues dropped significantly (50% for 2020, but only 20% for 2021) when you compare a quarter from 2020 or 2021 to the same quarter in 2019. 

Example:  If Revenues in Q2 of 2019 were $250,000

                 Revenues in Q2 of 2020 were $115,000  – You Qualify

                 Revenues in Q2 in 2021 were $199,000 – You Qualify

How quickly do I need to do something to get these funds?

Credits can be applied today. Don’t wait. 

How much could I receive?

You can apply for a retroactive credit for wages paid in 2020, and this could be as much as $5,000 per paid employee.

In 2021, the ERC is much more generous, and the eligibility is easier. You could qualify for up to $7,000 per employee per quarter.

How much work does this take? Is it worth it?

It’s the IRS, so it’s complicated, but if you get tens of thousands of dollars it is worth it. We suggest getting assistance. To understand your best next steps schedule a free consultation.

Sources:

IRS.gov

Execupay

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