Employee Retention Tax Credit (ERTC) is it for me?
The Employee Retention Tax Credit (ERTC) is one of the most beneficial provisions of the 2021 Consolidated Appropriations Act (the Act) signed into law on December 27, 2020. Prior to the Act, most businesses had been ineligible to claim the ERTC in 2020 because they received a PPP loan. Also, the ERTC is now extended to June 30, 2021. You might be surprised to find your business is eligible.
What is the ERTC? It is a fully refundable payroll tax credit for small businesses which experienced either (A) a significant decline in revenues OR (B) were subject to a government forced full or partial shut-down of operations.
What is a small employer? Small employers which have less than 500 employees. However, the credit is significantly limited for employers with more than 100 employees.
Who is Eligible for the ERTC? To claim this credit only one of the following two criteria must be met:
- Operations were fully or partially shut down as a result of orders from a governmental authority
- There was a significant decline in 2020 gross receipts when compared to 2019. This is defined as a 50% decline in 2020 and a 20% decline in 2021,as compared to the prior year’s quarter.
Can you claim the ERTC if you receive a PPP Loan? Yes.
Can the same wages be used for the ERTC and PPP forgiveness? No.
When do I need to claim this Credit? The credit is claimed on forms 941 or 943. Amended forms can be filed up to three years after their original due date. You have three years to amend these forms to claim the credit. There is no rush.
What qualifies as a partial shut-down order? The order must be issued by a government and mandate a business MUST shut down or limited. The IRS FAQs issued in March seem clear that the governmental orders cannot be a “should” statement. Modifications to business operations to meet social distancing requirements can constitute a partial shut-down if the restrictions have more than a nominal effect on business operations. For example table spacing requirements in restaurants constitute a partial shutdown.
Our KT headquarters is in the Mt. Rushmore state. Our governor issued a “should” stay at home order. However, some local governments issued “must” orders. For example, Rapid City closed bars and related businesses with a “must” order from March 27th to April 8th and then expanded the order on 4/22 to 7/31 to include spacing requirements for bars, restaurants, salons, gyms, and related establishments.
Other business owners are left scratching their heads wondering if a shut down order applied to them. For example, the SD State Board of Dentistry issued an order to dental clinics mandating compliance with the Governor’s “should” order. The dental board order was a “must” order, but the Governor’s order was a “should.” The IRS regulations have not clarified whether a state agency qualifies as a “government.” We are waiting on more guidance from the IRS, which should come in the next few weeks.
We know our businesses have been impacted by this pandemic. We are keeping a close eye out on new developments as they are presented. There is plenty of time to amend forms to claim these credits. KT is ready to assist with calculations and can help you segregate wages for ERTC from wages used in the PPP loan forgiveness. We have a team versed in the details with the ability to prepare a credit study and amend your returns.
If you have questions, email the experts at KT.
Sarah Davis: [email protected]
Nina Braun: [email protected]
Todd Hoese: [email protected]