Capitalizing on Employee Retention Tax Credits
The following article was provided by Whittlesey. It is posted here with permission.
The Employee Retention Credit is one of the most significant tax credits available to businesses and nonprofit organizations in years.
The ERC is a federal program (part of the CARES Act) designed to reward companies and organizations for retaining employees throughout the pandemic.
Employers impacted by COVID-19 can receive up to $26,000 of tax refunds for each employee.
Unlike traditional tax credits, this refundable credit is equal to cash. Eligible employers can receive thousands and sometimes millions of dollars in refunds.
The ERC can be a complex program and has evolved since the credit was introduced. Below is a list of frequently asked questions and answers.
What Is the ERC?
The ERC is a refundable payroll tax credit. Congress made the ERC refundable so the IRS can send you a refund greater than the amount of payroll taxes you paid to the IRS.
When you combine the potential 2020 and 2021 tax credits, the maximum refund could be $26,000 for each employee you had on your payroll.
There are generally two ways to qualify for the ERC.
Do I Qualify for the ERC?
- Employers must-have experienced full or partial shutdown due to a pandemic-related governmental shutdown order (or)
- Experienced a significant decline in gross receipts of greater than 20% for any quarter of 2021 compared to 2019, or a 50% decline in any quarter in 2020 as compared to 2019.
Many companies and nonprofit organizations mistake focusing on just the reduction of gross receipts and not paying enough attention to the full or partial shutdown rules to determine eligibility.
This is an either or test, making many employers who experienced a full or partial shutdown due to government restrictions eligible for this credit.
I Received a PPP Loan—Am I Eligible?
Yes, recipients of Paycheck Protection Program loans are eligible for the ERC.
However, PPP forgiven wages do not qualify for wages for this credit.
ERC credits are significant tax credits and can often be greater than PPP loan amounts.
Are Nonprofit and Religious Organizations Eligible?
Yes, nonprofit and religious organizations are eligible for this credit.
A wide range of industry employers may qualify for this credit, including but not limited to: construction, education, financial institutions, government contractors, healthcare and medical, hospitality, manufacturing, nonprofit organizations, professional services, real estate, religious organizations, retail/wholesale, and technology.
What Time Period Does the ERC Cover?
Most eligible employers can claim the ERC for qualified wages for most of 2020 and Q1-Q3 of 2021.
How Do I Apply?
You must file an amended payroll tax Form 941X Form for your eligible quarters.
I Already Filed My Payroll Taxes—Is It Too Late to Claim This Credit?
No, you can still file an amended 941X Form.
Whittlesey is currently working with numerous employers and has helped companies and nonprofit organizations claim millions of dollars under this program.
Our simple three-step process will determine your eligibility, analyze your situation to maximize your credit, and document and apply for the credit.
About the author: Brenden Healy is a Whittlesey tax partner in Hartford. He consults with businesses and individuals and focuses his practice on Nonprofit organizations, closely held businesses, manufacturing and distribution, and retail industries.
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