The Employee Retention Tax Credit Updates
In the last KT addition, we talked about the Employee retention credit and if it was for you. Since that time the IRS has issued notices and Congress is working on passing bills, but as of today the employee retention tax credit is still available for 2021 and could be a great benefit to your business.
The big news is that there is a new way to qualify without any reduction in revenues. Read below regarding a supply chain disruption.
Executive Summary – The Employee Retention Credit (ERTC) is here to help small business negatively impacted by Covid-19. The ERTC is a fully refundable payroll tax credit.
- For 2020 small employers who received the Paycheck Protection Program (PPP) funds are now allowed to also claim the ERTC. Employers qualify if they were fully or partially shut down by governmental order or if they had a greater than 50% drop in gross receipts for a quarter compared to the same quarter in 2019. The maximum wages allowed are $10,000 per employee, for the year, with a 50% credit on those wages up to $5,000 per employee.
- For 2021, the ERTC is expanded to allow small employers to qualify with a greater than 20% drop in gross receipts (2021 Qtr. to 2019 Qtr.), $10,000 of wages per quarter per employee can qualify and the credit on qualifying wages is increased to 70%. At $7,000 per employee, per quarter an employer potentially could receive $28,000 per employee for 2021.
- Recent Updates:
- IRS has clarified rules for more than 50% owners, stating that in majority of cases more than 50% owners and their spouses do not qualify.
- If you qualified for a quarter in 2021under the revenue test, you automatically qualify in the next quarter.
- There is a Bill in the works that will end the credit as of September 30, 2021, meaning that 4th quarter of 2021 would no longer be an applicable quarter for the credit. Ketel Thorstenson, LLP will send an update if this does pass.
- Your business will qualify for ERTC during a calendar quarter in which it experienced a supply chain disruption caused by a government order affecting a supplier that caused the supplier to suspend shipment. The disruption must have affected a “more than nominal portion” of your business, causing a full or partial suspension of business. The credit is earned in the quarter in which your business was fully or partially shut down. For purposes of this test, a more than nominal portion of the business must be a portion of the business that represented 10% of the total Company revenues in a calendar quarter when compared to 2019. Another way is that the affected portion of the business represented 10% of the total company labor hours in 2020/2021 calendar quarter as compared to 2019. You will need to document how you know the US supplier was disrupted by the Government order.
- There is an opportunity for a business that began operations after February 15, 2020, to qualify for the employee retention credit, referred to as a Recovery Startup Business. A Recovery Startup Business will not have qualified under the reduction of gross receipts or the partial or full shutdown due to governmental orders, however the average annual gross receipts for three years preceding the quarter which the credit was taken cannot exceed $1 million.
The Employee Retention Tax Credit can be a game changer for your business, unfortunately it is very complicated. Ketel Thorstenson, LLP is ready to help you determine if you qualify, assist with wage calculations including segregating wages for ERTC from wages used in the PPP loan forgiveness and finally we can prepare the Forms necessary to receive the credit.