The Employee Retention Credit (ERC) is a COVID relief program designed to provide a refundable payroll tax credit to eligible employers who provided compensation and/or employer paid health benefits to employees between March 12, 2020 and September 31, 2021. The maximum benefit to an eligible employer is:
- $5,000 per employee for the calendar year 2020
- $7,000 per employee for the first, second and third quarter of 2021
- $26,000 in total per employee
AM I AN ELIGIBLE EMPLOYER?
Eligible Employers are employers that carry on a trade or business during calendar year 2020 or 2021, including tax-exempt organizations, that either:
- Fully or partially suspend operation during any eligible calendar quarter in 2020 and 2021 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; or
- Experience a significant decline in gross receipts during the calendar quarter.
- In 2020, significant decline in gross receipts is defined as having gross receipts in a calendar quarter that are more than 50% less than the gross receipts in the same quarter of 2019.
- In 2021, significant decline in gross receipts is defined as having gross receipts in a calendar quarter that are more than 20% less than the gross receipts in the same quarter of 2019.
WHAT ELSE DO I NEED TO KNOW ABOUT THIS CREDIT?
This credit is designed to give employers a much needed financial boost to those who are facing disruption and even suspension to their operations due to the COVID pandemic. It’s certainly worth getting excited about when looking at the maximum credit amounts stated above and applying that to the number of employees that have been employed since March of 2020. However, certain complexities exist, including:
- DOCUMENTATION – Eligibility must be established for each quarter the credit is claimed. We must assume that there is a high potential for audit over the next 5 years. Documenting eligibility as well as the wage/credit amounts is crucial.
- PPP LOANS AND FORGIVENESS – Wages used to calculate ERC credits must not also be used in determining PPP loan forgiveness. In order to get maximum benefit from both relief programs, one must have an extensive knowledge of how expense are allowed to be treated during any period covered by a PPP loan. A misstep here could cost ERC credits, PPP forgiveness or both.
- GOVERNMENT ORDERS – Employers who are not eligible due to “significant decline” in gross receipts must show that COVID related government orders had a more than nominal impact to their operation. This means that employers must prove the cause (government order) and effect (operational impact) in order to truly be eligible for benefits
WHEN CAN I START THE REFUND PROCESS?
Now is the absolute best time to begin identifying your employee retention credits. There is an opportunity RIGHT NOW to apply for and receive refunds for previous quarters in 2020 or advance payment on current quarter credits.
- ADVANCE PAYMENT – Employers have the ability to apply for an advance on current quarter 2021 credits. This option is for employers who, in 2019, had an average of 500 or less full time employees. If eligible, applying for an advance is absolutely the fastest way to receive your current quarter benefits as the funds are expedited and then reconciled on the corresponding payroll tax return.
- REFUND THROUGH AMENDING PAYROLL TAX RETURNS – IRS has allowed employers to retroactively amend their quarterly payroll tax returns to claim credits not previously identified. The refund process can take up to 4-6 months, so amendments should be filed as soon as possible.
HOW CAN WE HELP?
Downey, Smith & Fier has been helping employers maximize their tax credits and incentives for almost 20 years. The importance of understanding the tax laws and constant changes to programs like the employee retention credit can not be overstated. DSF will provide an A to Z service that will include documenting and supporting business eligibility, identifying all eligible employees/wages, computing the maximum allowable tax credit values and preparing all necessary tax forms to apply for refunds. DSF will ensure that your business not only receives current year benefits, but is refunded for any 2020 benefits. If you believe you are an eligible employer, do not wait to contact DSF to start a risk-free review. For immediate assistance contact Joel Peterson or call (562) 249-6012