Employee Retention Credit***
***the following is a copy of a previously sent email on the topic; we are resending because it is:
a) a huge credit if applicable, and
b) complicated enough to warrant a second read.
The Employee Retention Credit is now available to PPP loan recipients.
No one paid much attention to this credit because it was off the table if you took a PPP loan, but the new bill now allows businesses to claim this credit both retroactively AND for the first half of 2021. For 2020, the credit is 50% of wages paid, up to $10,000 per employee per year (so $5,000 credit on $10,000 in eligible wages for the year of 2020). For 2021, the credit is increased to 70% of up to $10,000 per employee per quarter (currently runs for just Q1 and Q2, but could be up to $14,000 tax credit per employee if they earn more than $10,000 per quarter). Neither is a small amount--depending on "Eligible Wages"
What are "ELIGIBLE WAGES"?
- Eligible wages require the following:
- Full or Partial Shut Down by Gov't Order (for this option, only wages paid for work during a shutdown period qualifies), or:
- Drop of 50% or more in Gross Receipts for any quarter of 2020 compared to 2019 (for 2021, this threshold is less than 80% of Gross Receipts for the quarter compared to 2019). The credit can continue to be claimed until Gross Receipts exceed 80% of 2019 income for a full quarter.
- Eligible wages cannot duplicate wages claimed by PPP loan or any other gov't aid.
As you can tell, this isn't a simple credit to claim (or even know if/when you were/are eligible), but it's worth taking some time to explore it. It's also unclear how to claim it retroactively (IRS guidance still to come), so start looking back at what dates you were under government shutdowns and/or reviewing Quarterly Sales on a Profit and Loss Prev. Year Comparison.
Start by looking into the 2020 timeframe starting March 12 (first date eligible depending on state-by-state shut down dates: MN was a few days later than this I believe). Seeing as most people didn't get PPP loans till April or May (or later), there would possibly be some government shutdown dates that pre-date PPP funding. You also can claim it for later dates that overlap with PPP funding but you would need to make sure to not claim the same wages for both programs. It also means you should be more careful about what expenses you list on the PPP Loan Forgiveness application (if you haven't already submitted one); there is now an incentive to list more non-payroll items (capped at 40% of total loan forgiveness) rather than just claiming payroll costs for the full loan forgiveness.
WAIT TO FILE QUARTER FOUR PAYROLL REPORTS!
There isn't a year end rush to get this done, but we recommend that you wait to file your Q4 payroll reports if you think you'll qualify (again: to qualify for 2020, you need to either a) have been subject to full/partial gov’t shutdown OR b) had a decrease in sales of 50% or more for any quarter). Many people are guessing that the IRS may let us claim this credit on the Q4 941 report for all the previous quarters (rather than paper-file amendments to previous quarters), but this is too new to know for sure. So hold off on filing until later in the month!
AM I ELIGIBLE IN 2021? IF SO, START CLAIMING IN PAYROLL!
It's also good to determine if you think you'll be eligible for this credit in Q1 of 2021---many companies might not have a 50% drop in sales, but for 2021, you only need a > 20% quarterly drop compared to 2019, which is a much easier threshold to meet. You can qualify by using either Q4 of 2020 or Q1 of 2021 compared to the same quarter in 2019, so if you had a drop in sales by more than 20% for Oct -Dec, you’re already eligible for Q1 Employee Retention Credits and we can mark that eligibility in your payroll settings for each employee that you’re going to be paying. There is a checkbox in the Pay Types for ERC which will allow you to enter eligible hours for each employee marked as eligible.
Have a good New Year and we hope to talk soon: Winter--Tax Season--is coming...and this credit is a huge incentive to get your bookkeeping done for the year so we can determine your eligibility as well as file your income taxes!
Check out Part 1 and Part 2 of this Forbes article for even MORE info!
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