Who is this for?
- Businesses with employees
- Businesses thinking about adding employees
- Business start ups
ERC Highligts
- Receive up to $7,000 per employee per quarter in 2021 if you experienced a 20% decline in gross receipts as compared to the same quarter in 2019 (you can use the previous quarter to qualify), or be considered at least partially shutdown (no decline in revenue necessary).
- Receive up to $7,000 per employee per quarter for Recovery Start-Up Businesses. New Business start up category for businesses that started after February 15, 2020, no decline in revenue or partially shutdown requirement. Limited to $50,000 per quarter and only available for the 3rd and 4th quarter of 2021. Awaiting the fine print on this one.
- Receive up to $5,000 per employee for 2020 due to retroactive changes.
If you qualify, this is a great time to explore options that allow you to have a significant portion of your payroll costs covered.
Does my business qualify?
If you would like us to review your situation to:
Schedule a call to learn more and get the process started.
- Determine if you qualify for 2020 due to retroactive changes. Review how PPP affects calculation.
- Determine if you qualify in 2021. Review how PPP affects your calculation.
- Review strategies to qualify
- Calculate tax credit considering PPP - there can’t be duplication of benefits.
Schedule a call to learn more and get the process started.
Details about ERC
There were important changes for businesses in the recently signed bill that we thought should be highlighted.
Employee Retention Tax Credit (ERC)
(Note: Significant retroactive changes to this credit for 2020)
This credit existed in 2020 but was not discussed much because you were not allowed this credit if you received a PPP loan and because it was only available on employee wages, not owner(s) wages (or related party), so most small businesses went with the PPP forgivable loan.
They have changed the rules and this credit is available to more businesses with employees (who are not owners or related employees). The primary retroactive change for 2020 is that you are now eligible for the tax credit even if you received a PPP loan.
There is a 2020 ERC and a 2021 ERC with different qualifications and credits. The 2021 tax credits were significantly increased.
ERC is a refundable credit.
2021 ERC
Tax credit is up to 70% of an employee’s wages limited to $7,000 per quarter (not year like the 2020 credit). This is now available for all four quarters of 2021.
There are two different ways to qualify for the credit:
1. Full or Partial shutdown
2. Business experienced a 20% decline in revenue in quarter 1 or 2 of 2021 as compared to the same quarter in 2019. You can also use the results of a prior quarter to qualify for the current quarter. For example, If you experience a more than 20% decline in revenue in the 4th quarter of 2020 as compared to the 4th quarter of 2019, you are eligible for the ERTC in the 1st quarter of 2021.
The PPP effect is the same as before – If you plan to apply for another PPP loan, you can’t use the same wages for the tax credit that you are also planning to use for PPP forgiveness.
You can receive the tax credit through form 941 Quarterly Tax form. You can also apply for an advance of the credit with form 7200.
There are related party rules to be aware of. You can’t claim the credit on wages paid to most related party situations. Can you claim it on owner employee wages? That is the great debate, and as we wait for more clarity around this, we can discuss your particular situation, when we meet.
2020 ERC
Tax credit is up to 50% of an employee’s wages limited to $5,000 for the year.
There are two different ways to qualify:
1. Wages during a period of full or partial government shutdown.
2. Business experienced a 50% decline in revenue in a quarter in 2020 as compared to the same quarter in 2019.
What is considered a partial shutdown? The IRS is expected to provide more clarity on this, but the wording that has been used, “is it a more than nominal disruption of your business”.
If you received a PPP loan – you can’t use the wages that were paid by the PPP as qualified wages in calculating the credit.
To receive the credit for 2020, your 2020 941s will need to be amended.
ERTC for Recovery Start up Businesses
The latest Stimulus bill added a new category of business to be eligible for the Employee Retention Tax Credit. This allows a startup business to take the ERTC starting July 1st for the 3rd and 4th quarter of 2021 even if the business does not meet the other ERTC eligibility tests.
To qualify the business must have been established after February 15, 2020 and have annual gross receipts of no more than $1 million. The recovery startup credit is capped at $50,000 per quarter, per employer. We are still waiting to see the fine print for start up businesses. For example, the IRS may apply aggregation rules to disallow business that existed prior to February 15, 2020 from creating new businesses.
Schedule a call today to discuss your situation.
Employee Retention Tax Credit (ERC)
(Note: Significant retroactive changes to this credit for 2020)
This credit existed in 2020 but was not discussed much because you were not allowed this credit if you received a PPP loan and because it was only available on employee wages, not owner(s) wages (or related party), so most small businesses went with the PPP forgivable loan.
They have changed the rules and this credit is available to more businesses with employees (who are not owners or related employees). The primary retroactive change for 2020 is that you are now eligible for the tax credit even if you received a PPP loan.
There is a 2020 ERC and a 2021 ERC with different qualifications and credits. The 2021 tax credits were significantly increased.
ERC is a refundable credit.
2021 ERC
Tax credit is up to 70% of an employee’s wages limited to $7,000 per quarter (not year like the 2020 credit). This is now available for all four quarters of 2021.
There are two different ways to qualify for the credit:
1. Full or Partial shutdown
2. Business experienced a 20% decline in revenue in quarter 1 or 2 of 2021 as compared to the same quarter in 2019. You can also use the results of a prior quarter to qualify for the current quarter. For example, If you experience a more than 20% decline in revenue in the 4th quarter of 2020 as compared to the 4th quarter of 2019, you are eligible for the ERTC in the 1st quarter of 2021.
The PPP effect is the same as before – If you plan to apply for another PPP loan, you can’t use the same wages for the tax credit that you are also planning to use for PPP forgiveness.
You can receive the tax credit through form 941 Quarterly Tax form. You can also apply for an advance of the credit with form 7200.
There are related party rules to be aware of. You can’t claim the credit on wages paid to most related party situations. Can you claim it on owner employee wages? That is the great debate, and as we wait for more clarity around this, we can discuss your particular situation, when we meet.
2020 ERC
Tax credit is up to 50% of an employee’s wages limited to $5,000 for the year.
There are two different ways to qualify:
1. Wages during a period of full or partial government shutdown.
2. Business experienced a 50% decline in revenue in a quarter in 2020 as compared to the same quarter in 2019.
What is considered a partial shutdown? The IRS is expected to provide more clarity on this, but the wording that has been used, “is it a more than nominal disruption of your business”.
If you received a PPP loan – you can’t use the wages that were paid by the PPP as qualified wages in calculating the credit.
To receive the credit for 2020, your 2020 941s will need to be amended.
ERTC for Recovery Start up Businesses
The latest Stimulus bill added a new category of business to be eligible for the Employee Retention Tax Credit. This allows a startup business to take the ERTC starting July 1st for the 3rd and 4th quarter of 2021 even if the business does not meet the other ERTC eligibility tests.
To qualify the business must have been established after February 15, 2020 and have annual gross receipts of no more than $1 million. The recovery startup credit is capped at $50,000 per quarter, per employer. We are still waiting to see the fine print for start up businesses. For example, the IRS may apply aggregation rules to disallow business that existed prior to February 15, 2020 from creating new businesses.
Schedule a call today to discuss your situation.