𝐄𝐌𝐏𝐋𝐎𝐘𝐄𝐄 𝐑𝐄𝐓𝐄𝐍𝐓𝐈𝐎𝐍 𝐓𝐀𝐗 𝐂𝐑𝐄𝐃𝐈𝐓
Although most COVID-19 relief programs have expired, the Employee Retention Tax Credit (ERTC) has recently stepped back into view. The questions business owners are asked are: did your business have suspended or modified operations, or did it have reduced collections in 2020 or 2021 compared to 2019?
1. A decline in gross receipts with a drop of 50% or more for any quarter in 2020 when compared to the same quarter in 2019, and/or a drop by more than 20% for any quarter in 2021 compared to same quarter in 2019.
2. A government order requiring a full or partial shutdown. This is based on closing all or a portion of your physical space.
3. A government order caused more than a nominal effect on your business. This is based on the modification of a business activity.
𝐀𝐌𝐎𝐔𝐍𝐓 𝐎𝐅 𝐓𝐇𝐄 𝐂𝐑𝐄𝐃𝐈𝐓
𝟮𝟬𝟮𝟬: 50% of wages per employee with a maximum of $10,000 annually. $5,000 maximum credit per employee. Quarters two, three and four are eligible.
𝟮𝟬𝟮𝟭: 70% of wages per employee with a maximum of $10,000 per quarter. $21,000 maximum credit per employee. Quarters one, two and three are eligible.
You must meet one of the three scenarios above to qualify for the credit. A decline in gross receipts is easy to recognize; however, a lot of businesses will not qualify for this in 2020 or 2021. Full shutdown of a business, if mandated by the state, typically lasted between 8 to 15 weeks beginning in March 2020. This allowed those businesses, at a minimum, to qualify during the mandated shutdown period.
The qualification method still up for debate is a government order requiring either a partial shutdown or a modification to a business activity that caused more than a nominal effect. Thanks to the IRS safe harbor definition, a nominal portion or effect is defined as 10%.
𝐒𝐨, 𝐲𝐨𝐮 𝐦𝐚𝐲 𝐪𝐮𝐚𝐥𝐢𝐟𝐲 𝐢𝐟 𝐚 𝐠𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐨𝐫𝐝𝐞𝐫 𝐜𝐚𝐮𝐬𝐞𝐝:
1. A nominal portion of your operations to be suspended, and you had a reduction of more than 10% in gross receipts or worker hours as compared to the same quarter in 2019. This qualification is explicitly regarding a change to your physical space. For example, a restaurant had to shut down the indoor sit-down service.
2. A required nominal effect safe harbor modification that impacted your business activity by 10% or more. This qualification is based solely on a modification of business activity. For example, keeping people six feet apart. A restaurant was able to reopen but had to reduce capacity from 50 to 30 people to keep tables six feet apart.
𝐂͟𝐨͟𝐧͟𝐬͟𝐢͟𝐝͟𝐞͟𝐫͟ ͟𝐚͟ ͟𝐛͟𝐮͟𝐬͟𝐢͟𝐧͟𝐞͟𝐬͟𝐬͟ that had to modify their waiting rooms and entry to their offices and provided increased cleaning procedures. These modifications alone do not qualify you for the ERTC. You must also meet the 10% nominal effect test of being able to see or serve fewer customers clients or patients, an impact on business revenue, or your employees worked fewer hours.
If you meet any of the objective scenarios above, you could qualify for ERTC credits for 2020 or 2021. We are 𝒈𝒍𝒂𝒅 to help you with this process and capture these credits.
𝐀𝐥𝐬𝐨 𝐂𝐨𝐧𝐬𝐢𝐝𝐞𝐫 𝐭𝐡𝐞 𝐟𝐨𝐥𝐥𝐨𝐰𝐢𝐧𝐠:
1. 𝑻𝒂𝒙𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝒐𝒇 𝑪𝒓𝒆𝒅𝒊𝒕: This credit creates taxable income in the amount of the credit, requiring taxes owed when the corporate return is filed or amended. Income taxes could be as high as 30% or more of the credits received.
2. 𝑻𝒊𝒎𝒆𝒍𝒊𝒏𝒆: The timeline to receive these credits from the IRS can take over nine months. You have to be patient because you are not going to get the refunds from the IRS very quickly.
3. 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒚: Can these amended returns be audited, and if so, what are your responsibilities in case of an audit.
The ERTC was designed to aid struggling businesses during the COVID-19 pandemic as a way to supplement businesses that made the decision to retain employees on the payroll when the business itself was financially unstable. The qualifying time period was extended to support those businesses who were still struggling in 2021.
ERTC statutes were pushed out in a hurry by Congress. The language for qualifications is vague, leaving what can be perceived as room for interpretation.
Although there is no clear guidance now, the IRS can still create it after the fact. The statute of limitations gives the agency plenty of time to go back and audit any claims that appear dubious.