At the end of 2020, Congress passed the Consolidated Appropriations Act of 2021 (the Act), which included a host of new changes to COVID-19-related relief programs, including the Employee Retention Tax Credit (ERTC). The ERTC is a refundable federal payroll tax credit designed to encourage businesses to retain their employees through the pandemic. Businesses can claim the credit on their quarterly Form 941 (i.e., the Employer’s Quarterly Federal Tax Return). A business’s total number of employees does not impact whether it can claim the credit.
What is the credit worth? For example, in a qualifying business with 75 employees, the refundable credit can be worth as much as $1,425,000! Now that’s a lot of money!
Are you eligible for ERTC?
The ERTC is available to any business or organization that includes:
- For-profit businesses
- Tax-exempt organizations
- Certain government entities that are state or local-run (Effective January 1, 2021, previously no government entity at any level was eligible):
- Colleges or universities
- Organizations providing medical or hospital care
- Certain organizations charted by Congress (such as Fannie Mae, FDIC, Federal Home Loan Banks, and Federal Credit Unions)
How do you qualify for ERTC?
If your business was fully or partially suspended due to orders from the federal or state government limiting commerce, travel, or group meetings due to COVID-19; or
Your business experienced a significant decline in gross receipts during any quarter. For 2021, gross receipts need to have declined by at least 20% of what they were for the same calendar quarter in 2019 for the business to be eligible for the ERTC. For 2020, the revenue decline was required to be 50% or greater for the same calendar quarter in 2019.
The fully or partially suspended standard is where most business owners have focused their eligibility.
Defining suspension under the ERTC
How exactly do the rules define a “full” or “partial” suspension? A business is fully or partially suspended if an appropriate government authority-imposed restrictions on the business’s operations so that:
- The business had to cease all operations, or
- The business was still able to continue to operate with some, but not all, of its normal operations.
More than a “nominal portion” of the business’s operations must have been suspended by a government to be considered. For “essential businesses,” the suspension also must have impacted key suppliers, customers, or customer relationships.
Government orders for suspension include:
- An order from a city’s mayor stating that all nonessential businesses must close for a specific period;
- An emergency proclamation that residents must shelter in place, excluding employees of essential businesses;
- An order imposing a curfew on residents affecting the operating hours of a trade or business; or
- An order mandating a workplace closure for cleaning and disinfecting
How does my PPP Loan Factor In?
Companies with PPP loans can now also claim the ERTC, and the change is retroactive to the effective date of the original law (March 12, 2020).
When it comes to claiming the ERTC, business owners need to be mindful of “double-dipping.” Essentially, a practice may not double-benefit from claiming credits based on the same wages for the ERTC and the PPP; wages used in calculating paid sick and family leave credits under the Families First Coronavirus Response Act (FFCRA); and the Work Opportunity Tax Credit (WOTC).
PPP recipients can now file amended payroll tax returns to claim the ERTC for 2020 or claim the ERTC in 2021. The Act also brought forth significant enhancements to the ERTC for the new year, which will be a welcome change to many business owners.
The bottom line
It is reassuring to see more opportunities for businesses to get some relief in the wake of the pandemic. However, the guidelines governing these programs can be tricky. That’s why it’s essential to talk with us to help you navigate the application processes and ensure you have a strategy that allows you to make the most of your funds.