The past year and a half can be described in many ways, but challenging seems most accurate. For businesses, a large part of that swirled around ever-changing pandemic-related legislation. And while things are getting back to normal, there are still opportunities for you to continue taking advantage of significant tax savings due to the Employer Retention Tax Credit (ERTC).
What’s the big deal?
The ERTC was created as part of the CARES Act back in March 2020. It was then expanded by both The Consolidated Appropriations Act, 2021, signed into law by President Trump on December 26, 2020, and the America Rescue Plan Act of 2021, signed into law March 11, 2021. As a result of these expansions, this particular tax credit is available through December 31, 2021, and it may be worth thousands to your business.
What? Is the government actually giving away thousands of dollars in tax credit after giving away millions in PPP forgiven loans? Yes, that is correct. The ERTC could be worth up to $5,000 per employee for 2020 and up to $28,000 per employee for 2021.
Let’s break the ERTC down into some relatable examples:
- A business with ten employees that qualifies for 2020 could get an ERTC of up to $50,000 (10 employees *$5,000).
- The same business with ten employees that qualifies for 2021 could receive an ERTC of up to $70,000 per quarter for a total of $280,000 for the year.
Those are attention-grabbing numbers! Now let’s discuss exactly how to qualify for them.
Do You Qualify?
The fantastic news is that many businesses qualify, but unfortunately, not all of them realize it.
You have employees, and your business was fully or partially shut down due to orders from a government authority related to COVID-19 in 2020
Gross receipts were less than 50% of any quarter in 2020 compared to 2019; you could qualify for the Employee Retention Tax Credit (ERTC).
For 2021 the requirements were significantly loosened, and you qualify if:
Gross receipts are less than 80% of that quarter in 2019 (meaning your revenue declined by more than 20%), you could be eligible.
Plus, if your business revenue is less than $1 million on average for the last three years or if you started the business after February 15, 2020, you have an opportunity to qualify for the 3rd and 4th quarters of 2021.
What’s the Catch?
We know it sounds too good to be true, and yes, there are some items you need to be aware of. First, you cannot use the same wages to qualify for the PPP1 or PPP2 loan forgiveness and the ERTC. This is critically important to understand – as it may change what expenses you choose to use for loan forgiveness. If you haven’t applied for forgiveness and think you qualify for ERTC, please contact us ASAP before applying! Our PPP and ERTC experts have helped many firms work through this process to make the best decisions based on the business’s unique situation.
Additionally, you also cannot use the same wages to qualify for certain other credits. Don’t let that hold you back; with some strategic planning, you can allocate wages between the two and still maximize both.
Calculating the Credit
The credit is calculated quarterly based on your gross wages and is taken on your quarterly 941 forms. If your business does qualify, you could potentially reduce payroll tax payments and “keep” some of the employee and employer taxes as an immediate tax credit and cash flow boost. If you have already filed your 941, it is refundable by filing a 941X to request the refund.
Tax Planning Opportunities A Plenty
If you are cash basis, you have a great opportunity to strategically plan your revenue for the 3rd and 4th Quarters of 2021. By qualifying for the 3rd quarter, you can automatically qualify for the 4th quarter. This win-win scenario pushes invoicing until the end of the 3rd quarter, so receipts aren’t received until the 4th quarter.
If you received the PPP1 or PPP2, have FFCRA (COVID pay), WOTC, R&D, or FAR OH, you have planning opportunities to maximize the ERTC, other credits and/or loan forgiveness.
Knowledge is power, and planning is everything!
Why are we so passionate about sharing this information? Because we have worked with so many businesses that don’t think they qualify for the ERTC until they talk to us and find out they do. We have seen firsthand how lucrative this tax credit can be. Don’t let THOUSANDS of dollars pass you by. Reach out for a free ERTC assessment by one of our experts today! You can also join our upcoming webinar, where we’ll provide more details on the ERTC and talk about tax planning opportunities for a year like no other.
Kelly A. Chambers, CPA | Director, Entrepreneurial Services Group
Utilizing her diverse accounting and business background, Kelly provides accounting, tax, and consulting services to small businesses in varied industries, including specialized expertise in the Employee Retention Tax Credit. Wasting no time getting to the heart of the challenges facing her clients, Kelly works to develop innovative, customized solutions. As a bonus, she is proficient in accounting information systems including QuickBooks, Peachtree, and Business Works.