Outstanding FAQs: Economic Relief in 2022
The following was first posted in the Insights section of the website of the professional services firm CLA. It is reposted here with permission.
Two years ago this month, the first round of economic relief became available to employers and employees suffering consequences of the pandemic.
In the 24 months that followed, multiple laws were enacted—along with much regulatory guidance.
Many questions remain unanswered, and businesses are trying to navigate what relief may still be available, as well as what reporting and audit requirements still remain.
Payroll dollars used to compensate employees in 2020 and 2021 are the key to unlocking savings and enhancing value in these programs.
Look at payroll as a commodity—along with the investment in your workforce and accounting of that money—to drive the total benefit.
FFCRA Tax Credits
The Families First Coronavirus Response Act required employers with fewer than 500 employees to pay wages to employees who were quarantining under doctor’s orders or who were caring for a dependent or a member of their household who was impacted by COVID.
For employers who paid emergency paid sick leave and emergency family medical leave wages to eligible employees, a dollar-for-dollar credit was provided—with some limits—through the end of 2020.
Various legislation that followed—including the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021—extended the availability of the credit without extending the obligation for employers to pay.
Employers who paid these wages from March 2020 through Q3 of 2021 may still amend their payroll tax returns to claim the credit.
The deadline to file the claim is three years from the original due date of the return. These credits must be claimed as income in the year for which the credit was generated.
Reconsider Eligible Expenses for PPP Loans
The CARES Act provided a low-interest, potentially forgivable payroll loan to employers who met certain criteria, and the CAA provided a second round of payroll funding to employers who retained employees and incurred certain costs to remain in business.
The Small Business Administration regulated this program heavily, from the application for funds and borrower eligibility criteria to the forgiveness considerations.
Although the funds allocated to this program are exhausted, several employers who have not yet completed the forgiveness application and process should consider the expanded list of eligible expenses outside of payroll.
To enhance other economic relief programs created by the legislation, include all possible non-payroll costs in the forgiveness application.
Claim ERC, Watch for Expansion
In 2020, businesses could qualify for the employee retention credit with a significant decline in gross receipts, or a full or partial suspension of operations due to a government order.
By the end of 2021, businesses could qualify as a recovery start-up business—if the business was started after Feb. 15, 2020, and had less than an average $1 million in receipts in each of the prior three years (considering aggregation with certain related parties).
In the last instance, the credit was capped at $50,000 per quarter.
Similar to FFCRA credits, employers have three years from the deadline of the quarterly returns to amend their payroll tax returns to claim the ERC.
If you claim these credits, you must reduce the income tax deduction for payroll expenses by the amount of the credit in the year for which the credit was generated.
Employers are still watching for legislation that calls to reinstate the credit for Q4 of 2021. Should that pass, working with your tax advisor to file Forms 941-X may allow you to claim the credit to the extent eligibility applies.
As of now, many employers are waiting to receive their requested refunds. The IRS has stated that the waiting period can be as long as a year and has asked for the employer’s patience.
RRF, SVOG, EIDL Status
However, in many cases, EIDL applications are still being processed.
Keep in mind that funding from these programs does not need to be included in the gross receipts calculation for eligibility determinations for the ERC program.
That said, they will still need to be accounted for in financial statements and tax return documents.
About the author: Jennifer Rohen is a business incentives consulting practice leader and principal with CLA.
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