Make sure your business is getting all of the support available from government programs before the tax filing deadline. This means, for example, that you need to verify that you have fully used the Employee Retention Credit (ERC), the refundable tax credit that makes it easy for companies to keep employees on payroll.
The loan is extended under the American Rescue Plan Act, the $ 1.9 trillion aid package just signed by President Biden. The ERC, originally slated for June 30th, will continue through the end of the year and give business owners access to incentives of up to $ 33,000 per employee.
How the credit works depends on the time frame:
Eligible employers can apply from January 1 to June 30, 2021 for a refundable credit towards the employer’s share of social security tax equal to 70 percent of a full-time employee’s qualified salary, including certain health insurance expenses. The maximum ERC amount available is $ 7,000 per employee per quarter or $ 14,000 for eligible wages paid in the first half of 2021.
This component is available to companies that have completely or partially ceased operations due to government mandates or that can show a quarterly reduction in quarterly gross income of at least 20 percent compared to the same quarter of the previous year.
The new law allows companies to claim the employer’s refundable employment tax (including Medicare) credit of up to $ 7,000 per full-time per quarter over the past six months. Including the existing regulations, entrepreneurs would qualify for up to $ 28,000 per employee this year.
The same eligibility rules apply in the last two quarters of 2021: your company must have experienced a full or partial closure or a decrease in quarterly gross income of at least 20 percent in 2021.
Employers can also qualify for a 2020 retrospective to access an additional credit per full-time employee. The measure was approved under the Consolidated Appropriations Act (CAA), which also allowed ERC beneficiaries to apply for a loan for the Paycheck Protection Program, although employers cannot claim the ERC for expenses paid with issued PPP funds .
To access the 2020 balance, which extends from March 12, 2020 to January 1, 2021, Eligible Companies must experience a quarterly decline of more than 50 percent Gross revenue compared to the same quarter of the previous year. Credit is 50 percent of qualified wages paid, up to $ 10,000 per employee in 2020. The maximum credit available is $ 5,000 per employee.
How to register the benefit:
PPP recipients can file amended tax returns to apply for the 2020 ERC and / or an ERC on their 2021 tax return. Unlike the PPP, which was developed for small businesses, the number of employees in a company does not affect eligibility for the loan.
One caveat: the size of a company determines what wages can be claimed. Large companies (more than 500 employees) can only claim the ERC for wages paid to employees when they are not providing services. According to the auditing company BDO, smaller companies (500 or fewer employees) can request a credit for all wages paid to employees, regardless of whether they are actively working or not.
The CAA raised the threshold for “large employers” from more than 100 to more than 500 employees. Note that the 100-employee standard will still apply when applying for the 2020 loan.
Companies with fewer than 500 employees can also apply for a prepayment of the loan (subject to certain restrictions) directly with the Internal Revenue Service.
“This is a potentially great godsend for businesses in the US,” said John Bly, regional managing partner at Aprio, an Atlanta CPA and consulting firm, in a recent webinar hosted by Business Leverage Advisor Multifunding. “And people don’t talk about it enough.”
That said, he added, ERC is also a headache for some business owners – especially now that they are filing their year-end taxes. Companies eligible for the ERC may also have used the PPP and may have already applied for a loan. Understanding the nuances of these interconnected programs and their reporting requirements is vital, and requires time and resources that a company’s existing accounting function may not have, he adds.
To receive the credit, eligible employers must report their total qualifying wages and associated health insurance costs for each quarter on their quarterly income tax return (Form 941) IRS. For those filing annually, companies must complete Form 941 for each quarter that they apply for the ERC. To receive the ERC advance payment, you should fill out Form 7200.
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