As you probably know, in March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which included an employee retention tax credit (the “ERTC”). Then, in December 2020, that ERTC was extended into the first two quarters of 2021 by the Consolidated Appropriations Act (the “CAA”). Now, American Rescue Plan Act (the “ARPA”), in turn, extends the ERTC through the end of 2021. There are, though, some slightly different rules for how it worked in 2020 and how it works in 2021. In particular, if you experienced a reduction in your gross receipts of 80% or more due to the pandemic, then you should definitely keep reading. Also, please note that RMI will have ERTC 2020 and ERTC 2021 reports available in RMI Intel later today. These reports will provide the data necessary for you to determine qualified wages and credit amounts. You will need to provide that information back to RMI by April 30, 2021 so that RMI is able to timely submit an amended Form 941, which is the method to receive the credit. Those reports can be submitted to RMI at the following email address: ertc@rminc.com. We are also required to have each client that submits a credit request to fill out a short attestation since eligibility is based on factors related to revenues of the company. Below is more detailed information, we also recommend you contact your tax professional to determine eligibility.
2020
Which Employers Qualify? Any employer carrying on a business during calendar year 2020, and, for any calendar quarter of 2020, where (1) the operation of the business was fully or partially suspended because of orders from an appropriate governmental authority that limited commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19, or (2) that calendar quarter is within the period in which the employer had a significant decline in gross receipts (50% or more reduction) compared with the same quarter in 2019.
What Wages Qualify? Qualified wages include bonuses and commissions, cash tips, employees’ pre-tax contributions to health plans, employer-provided sick and vacation pay, qualified health plan expenses paid by the employer on the employee’s behalf, and salaries and wages. However, wages that are paid to individuals who are related to one another (e.g., wages paid to someone who owns more than 50% of the value of the business and their family members) won’t qualify. Even if you qualify, you cannot include wages that were used to obtain PPP loan forgiveness or amounts that were used to claim the sick and family leave credit; that is, no double dipping.
What Is the Maximum Allowable Credit? In 2020, the maximum allowable credit is $5,000 per employee, which is based on a maximum allowable amount of qualified wages of $10,000. Employers are then permitted to take a credit that is equal to 50% of those maximum allowable wages.
How Do I Claim the Credit? The credit is taken as a credit against your share of Social Security taxes, which are filed on Form 941. Any excess tax collected is refundable under normal IRS procedures. If you are currently seeking a credit for 2020, then it is after the original Form 941 was filed, which means that RMI will file an amended 941 for all clients seeking such credits for 2020.
What Does the IRS Think? Please see the following link the IRS’s most recent Notice on 2020: IRS Notice 2021-20
2021
Which Employers Qualify? Any employer carrying on a business during calendar year 2021, and, for any calendar quarter of 2021, where (1) the operation of the business was fully or partially suspended because of orders from an appropriate governmental authority that limited commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19, or (2) that calendar quarter is within the period in which the employer had a significant decline in gross receipts (80% or more reduction) compared with the same quarter in 2019. In addition, the ARPA has added two new types of businesses that can qualify for the credit: (1) a “recovery startup business” (i.e., employers who began business after February 15, 2020, have gross annual receipts of up to $1 million, and are otherwise ineligible under the other applicable eligibility requirements) and (2) severely financially distressed employers (i.e., companies with gross receipt reductions of more than 90% compared to the same quarter in 2019).
What Wages Qualify? Qualified wages are the same, that is they include bonuses and commissions, cash tips, employees’ pre-tax contributions to health plans, employer-provided sick and vacation pay, qualified health plan expenses paid by the employer on the employee’s behalf, and salaries and wages. And, still, wages that are paid to individuals who are related to one another (e.g., wages paid to someone who owns more than 50% of the value of the business and their family members) won’t qualify. Even if you qualify, you cannot include wages that were used to obtain PPP loan forgiveness or amounts that were used to claim the sick and family leave credit; that is, there’s still no double dipping.
What Is the Maximum Allowable Credit? For 2021, the maximum allowable credit is $7,000 per employee per quarter, which is based on a maximum allowable amount of qualified wages of $10,000. Employers are then permitted to take a credit that is equal to 70% of those maximum allowable wages per employee per quarter. So, eligible employers can conceivably receive up to $28,000 in credit.
How Do I Claim the Credit? The credit is still taken as a credit against your share of Social Security taxes, which are filed on Form 941. Any excess tax collected is refundable under normal IRS procedures. If you are anticipating claiming the credit in 2021, then you can retain a corresponding amount of those above-referenced Social Security taxes that would have otherwise been deposited with the IRS. If you are eligible for the credit, then you can also request an advance of the credit by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. If you have eligible credits for a quarter that are in excess of your Social Security tax deposits that would otherwise be due by you during the quarter, then the Form 7200 can be filed to request the advance payment of the excess credits.