EMPLOYEE RETENTION TAX CREDIT

The Employee Retention Credit is a fully refundable tax credit for employers, and was a stimulus package passed into law to reward businesses who continued to pay their employees during 2020 and 2021. 

2020

• Up to 50 percent of qualified wages (including qualified health plan expenses) that Eligible Employers pay their employees.  
• The credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. 
• The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an  Eligible Employer for qualified wages paid to any employee is $5,000. 
• To be considered an eligible employer*, you must have had less than 100 employees in 2020.

2021

• Up to 70 percent of qualified wages (including qualified health plan expenses) that Eligible Employers pay their employees.       
• The credit applies to qualified wages paid in Q1-Q3 for 2021.
• The maximum amount of  qualified wages taken into account with respect to each employee for each calendar quarter (Q1-3) is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $7,000 (per quarter, for a total of 21,000 for calendar year 2021).
• To be considered an eligible employer*, you must have had less than 500 full-time employees in 2021

*Eligible "Small Employer"

The staggering amount of money currently being spent by the federal government is surpassed only by the complexity of the tangled web of statutes, IRS provisions, and executive orders that govern the dissemination of funds related to the various stimulus programs. To keep track of the constantly changing availability and qualification standards, it is literally a full time job for tax attorneys specializing in state and federal tax credits.

Perhaps the most important language to apply is a two part test in the Consolidated Appropriations Act (CAA) COVID-19 relief legislation that amended and expanded the earlier version of the  CARES Act. 

The first way is if your business was impacted by any local, state, or federal COVID-19 related order that had more than a nominal impact on your business operations. 

The second way is if your business experienced a significant decline in gross receipts. 

These two tests are not dependent on each other. They should be viewed and applied  separately.  The specific language, reads--

EITHER 

1.  The operations of the trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19. Section 2301(c)(2)(A)(i).

  OR

2. The business experienced a more than 20% reduction (2020-more than 50%) in gross receipts (significant decline in gross receipts) when comparing either the calendar quarter or the prior quarter to the corresponding quarter in 2019. Section 2301(c)(2)(A)(ii). 

 According to the IRS, "The operation of a trade or business is partially suspended if an appropriate governmental authority imposes restrictions on the employer’s operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 such that the employer can still continue some, but not all of its typical operations."

In IRS Notice 2021-20, they give more guidelines on this: 

Q: If a governmental order requires non-essential businesses to suspend operations but allows essential businesses to continue operations, is an essential business considered to have a full or partial suspension of operations due to a governmental order?

A: An employer that operates an essential business is not considered to have a full or partial suspension of operations if the governmental order allows all of the employer’s operations to remain open. However, an employer that operates an essential business may be considered to have a partial suspension of operations if, under the facts and circumstances, more than a nominal portion of its business operations are suspended by a governmental order

Being considered an essential business does NOT disqualify the business from being eligible. The IRS agrees in their published guidance.

IRS Notice 2021-20: 

An employer that operates an essential business is not considered to have a full or partial suspension of operations if the governmental order allows all of the employer’s operations to remain open. However, an employer that operates an essential business may be considered to have a partial suspension of operations if, under the facts and circumstances, more than a nominal portion of its business operations are suspended by a governmental order.

A nominal portion of its business operations if either:

 (i) the gross receipts from that portion of the business operations is not less than 10 percent of the total gross receipts, or

(ii) the hours of service performed by employees in that portion of the business is not less than 10 percent of the total number of hours of service performed by all employees in the employer’s business

 (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019).

An employer may be considered to have a full or partial suspension of operations due to a governmental order if, under the facts and circumstances, the business’s suppliers are unable to make deliveries of critical goods or materials due to a governmental order that causes the supplier to suspend its operations.

If the facts and circumstances indicate that the business’s operations are fully or partially suspended as a result of the inability to obtain critical goods or materials from its suppliers because they were required to suspend operations, then the business would be considered an eligible employer for calendar quarters during which its operations are fully or partially suspended and may be eligible to receive the employee retention credit. (IRS Notice 2021-20)

Of the many federal programs available, many businesses opted to file for the PPP loans. However, filing for PPP loans DOES NOT disqualify your business from filing for many of the other programs. You merely can not "double-dip" using PPP payroll amounts in the ERC calculation. 

 The information you need to file is largely already available in your  payroll software and is often available in ready-to-download reports.  Our staff will walk you through the steps to make it as easy as  possible. The information can be collected in less than a day. 

The amount of money for which your business is eligible will vary based on individual circumstances. Once your documents are filed with the IRS, it is currently taking 90-120 days to receive your check. The processing time is trending upward as more and more businesses file applications.

Yes your business can qualify. However, There is a special rule to apply, from the Consolidated Appropriations Act (CAA): 

"With respect to any employer for any calendar quarter, if such employer was not in existence as of the beginning of the same calendar quarter in calendar year 2019, [the language in the CARES Act] shall be applied by substituting '2020' with '2019'.

(B) Special Rule for Employers Not in Existence in 2019-- IN the case of any employer that was not in existence in 2019, subparagraphs (A) and (B) shall each be applied by substituting '2020' for '2019' each place it appears."