The Employee Retention Credit
The Employee Retention Credit
Recent tax law changes have broadened the Employee Retention Credit to businesses. It is my understanding these changes relate to businesses that were either:
-Forced to close due to Government Order (a non-essential service).
-Gross Receipts fell when comparing to the same quarter in 2019 (by over 50% in 2020 or 20% in 2021 (likewise compared to 2019)).
For 2020 the credit is equal to 50% of Qualified Wages maxed at 5,000 for the year. Credit continues to apply until a quarter where gross receipts are 80% of gross receipts of the same quarter in the previous year.
For 2021 the credit is equal to 70% of Qualified Wages maxed at 7,000 per quarter (for first two quarters of 2021). 2021 quarters likewise are compared to the same quarters in 2019.
A business can qualify if more than a “nominal portion” of its operations are “partially suspended” as a result of a government order restricting travel, group meetings & commerce (regardless of whether had a reduction of operations from March 12, 2020 through December 31, 2020.
IRS defines “nominal” to be either:
-Gross Receipts from that portion of a business is at least 10% of total gross receipts of same quarter in 2019 or
-More than a “nominal” effect on the business (i.e., a restaurant).
However if a business is able to continue comparable conditions they would not be eligible for a credit. Items to consider would be portability of an employee’s work, business shut down for more than two weeks to begin teleworking or a need for an employee to be at an office (i.e., a manufacturing company).
Please keep in mind:
-Credits to do apply to wages paid to the business owner.
-Credits do not apply if you are able to continue in a comparable manner even if remotely.
-Credits do not apply to businesses that voluntarily reduce hours/operations.
-If you have more than one company you will be treated as one entity/a controlled group (for qualification purposes).
-You can now claim both the PPP loan & the Employee Retention Credit. However wages considered for PPP qualification cannot also be used to qualify for the Employee Retention Credit.
The credit is claimed on IRS Form 941 or if fling for a previously paid quarter IRS Form 941-X.
