The Federal Reserve reported that hundreds of thousands of businesses have had to exit the market as a result of the economic crisis. Given the resounding impact that business failure has on the United States economy, the government has rolled out several programs in an attempt to sustain these companies. One of these programs is the Employee Retention Credit Qualification. As licensed accountants and knowledgeable lawyers, we serve as trusted advisors and legal counsel to business owners. We approach all business issues from a dual-faceted lens, offering comprehensive solutions that can benefit any business. If you are a business owner looking to capitalize on the Employee Retention Credit Qualification, we can help you navigate the process. Read on to learn more about what this rollout is and how it can impact your business, and consider contacting CPA Attorney at 702-852-2577 to get started.
The Employee Retention Credit Qualification (ERC) was developed as a refundable tax credit that can be applied to specific employment taxes equal to half the employee wages an employer pays. The idea behind the program is to provide employers with the necessary financial support to continue compensating employees. The program also works to minimize the number of workers who need to file for unemployment. Set forth by the Coronavirus Aid, Relief, and Economic Security Act, the ERC mitigates the financial impact of the global pandemic. The ERC is applicable for qualified wages paid between March 12, 2020, and January 1, 2021. Employers whose operations were suspended either fully or partly due to COVID-19 orders or, alternatively, whose gross receipts for any given quarter in 2020 were less than half of the gross receipts for the corresponding 2019 quarter may qualify.
With the passing of the American Rescue Plan Act, the ERC is now also available for 2021 with a few differences. This is a valuable extension of the program, offering more opportunities for business owners to recover financially. The Infrastructure Investment and Jobs Act ended the ERC program early, however, rendering any wages paid after September 30, 2021, ineligible for the ERC.
To utilize the Employee Retention Credit Qualification, an employer must be considered an “eligible employer” under Internal Revenue Code Section 52 or 414, depending on business structure. Furthermore, the law maintains different requirements for 2020 and 2021:
● For 2020, an eligible employer is defined as an employer who can demonstrate either
● That 2020 quarterly gross receipts were less than 50% of the gross receipts for the comparable quarter in 2019
● Or that business activity was suspended at least partially because of an order issued by the government that placed a limit on conducting business, traveling, or gathering due to COVID-19
● For 2021, an eligible employer is one who can demonstrate either
○ That 2021 quarterly gross receipts were less than 80% of the gross receipts for the comparable quarter in 2020
○ Or that business activity was suspended at least partially because of an order issued by the government that placed a limit on conducting business, traveling, or gathering due to COVID-19
It should also be noted that some businesses will qualify as a Recovery Startup Business. These businesses are the only ones that qualify for a Q4 2021 ERC. To qualify as a Recovery Startup Business, both of the following criteria must be met:
● The business started after February 15, 2020
● The business’s gross receipts total under $1 million
The Employee Retention Credit Qualification is applicable for qualified wages, which include specified health plan expenses, disbursed during any qualifying calendar quarter during which business activities were suspended. To understand this, it is important to note what is considered a “qualified wage” under the law. Employers are able to recover qualified wages using the Employee Retention Credit Qualification, but the definition of qualified wages varies depending on the size of the business and the number of employees the business has.
If an employer had an average of over 100 employees during 2019, qualified wages include certain healthcare costs as well as all wages paid to employees whose services were stopped due to a financial hardship of the business. Regarding the latter, employers can claim up to the amount that their employee was paid for working an equivalent duration in the 30 days prior to the period of economic instability.
For employers with an average of fewer than 100 employees during 2019, qualified wages include certain healthcare costs and any wages paid to an employee during the period in which operations were suspended or the period in which decline was recorded. These wages are counted under the ERC regardless of whether or not the employee’s services were suspended.
The following wages are NOT considered qualified wages under the ERC:
● Wages paid to a majority owner and/or the owner’s spouse, unless they have no family due to attribution rules
● Wages paid using the Families First Coronavirus Response Act
● Compensation that was paid using a forgiven Paycheck Protection Program
Understanding which wages are qualified wages under the ERC is complex. For personalized advice regarding which wages can be recovered using the ERC, consider speaking with an experienced attorney at CPA Attorney today.
To claim the Employee Retention Credit, eligible employers are required to report their gross qualified wages, in addition to health-care related costs, for each quarter on their employment tax returns. For the majority of employers, these costs can be reported using Form 941. The credit is taken against the employer’s portion of Social Security tax, and any additional amount is refundable through normal tax procedures. Eligible employers may also request an advance of the ERC by submitting Form 7200.
The Employee Retention Credit Qualification is a valuable option for employers who have faced financial hardship resulting from the COVID-19 pandemic. Navigating this program can be difficult, however, and it is essential to follow all IRS guidelines when applying for the credit. If you are a business owner, you may be eligible to recover lost wages. For more information regarding the ERC or how to determine whether you qualify for recovery, contact CPA Attorney at 702-852-2577 to learn more about your legal rights.
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