Employee Retention Credit
01 June, 2021
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Hi, Katie here.
We’re shifting from the SBA to the IRS. Let's learn about the Employee Retention Credit (ERC).
With all the changes and tax time approaching ~2 months away, I hope you’re ready to go. Here is some information that’s good to know. So grab a cup of coffee as we attemp to simplify IRS-speak.
This credit is makes it easier for businesses that chose to keep employees on their payroll. For those of you who kept your employees, thank you and stick with me as go forward.
The name of this is the Taxpayer Certainty and Disaster Tax Relief Act of 2020, and enacted on 12/27/2020. This made changes to the CARES Act.
The change is extending the ERC for six months through June 30, 2021. Several of the changes apply only to 2021, while others apply to both 2020 and 2021.
Later in the blog, we'll bring clarity.
Here’s what this new Act reads. as an employer, you can apply a refundable tax credit.
This tax credit is against the employer share of Social Security tax. The credit is equal to 70% of the qualified wages employers pay to employees. The dates are 1/1/21 through 6/30/21.
The limits of qualified wages are $10,000 per employee per calendar quarter in 2021. This means the largest ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.
You as an employer can access the ERC for Q1 and Q2 of ’21. If you are an employer with 500 or less full-time employees in 2019, check this out. You may request an advance payment on Form 7200, Advance of Employer Credits Due to Covid-19.
Advanced payments come with limits Fill out the form after reducing deposits.
In 2021, if you are an employer with greater than 500 employees, you are not eligible for the advance.
Here are a couple of eligibility rules. As of 1/1/21 employers are eligible if you operate a trade business during 1/1/21 – 6/30/21 (Q1 & Q2 of 2021) and either of these apply.
- If you had to close your business for a while or cut staff or reduced hours here is the rule. If the reason was government restrictions due to COVID-19, or
- Less gross receipts in a calendar quarter in 2021 when compared to 2019. If your gross receipts are less than 80% of the gross receipts in the same calendar quarter in 2019. To be eligible based on a less gross receipts in 2020 the gross receipts must be less than 50%.
If you started your business in 2020 then use the same quarter in 2020 to measure your lower gross receipts.
For Q1 and Q2 of ’21 here's how you measure the loss in gross receipts. Use the quarter that came before the current quarter. An example is Q4 of 2020 to measure Q1 of 2021.
Effective 1/1/21 the definition of qualified wages now reads:
If you are an employer that averaged 500+ full-time employees in 2019, here is your definition. Qualified wages are generally those wages paid to employees that are not working. If operations were fully or partially suspended or due to the decline in gross receipts.
For an employer that averaged 500 or less full-time employees in 2019, here is your definition. Qualified wages are wages paid to all employees when your business was fully or partially shut down. Or during the quarter that the employer had less gross receipts. This is regardless of whether the employees are working.
Here is a paragraph for employers who received PPP loans from 3/27/20 and forward. You may claim the ERC for qualified wages if they are not treated as payroll costs. They cannot be used in getting forgiveness of the PPP loan.
You may check out this link for more information COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs or contact me and we can talk through this.
The next blog will be about what to do after you receive your PPP loan.