• Did your business suffer a revenue decline in 2020?
• Do you expect a revenue decline in 2021 compared to 2019?
• Did your business experience a shutdown in 2020?
• Did your business continue paying employees during these times of disruption?

If so, there may be significant opportunities to claim refundable tax credits on wages paid in 2020 and 2021.

Overview

The Consolidated Appropriations Act (CAA), signed by President Trump in late-December 2020, extended and expanded the Employee Retention Credit (ERC), a refundable payroll tax credit.

The CAA repealed a provision under the CARES Act signed in March 2020 that made Paycheck Protection Program (PPP) borrowers disallowed from using the ERC. Now both programs can be used by eligible employers retroactively and prospectively, although double-dipping the same wages is not allowed. Many employers may now qualify for significant benefits in 2020 and/or 2021.

2020 ERC (wages paid 3/13/2020 – 12/31/2020)

To be eligible for the 2020 ERC, an employer (including affiliated entities) must demonstrate one of the below:

• At least 50 percent decline in a 2020 calendar quarter’s gross receipts (on tax return method of accounting) compared to the same quarter in 2019 OR
• Full or partial suspension of operation due to a government order in 2020 OR
• Supplier subject to full or partial suspension of operations due to government order that caused operational disruptions to the supply chain.

If the business meets one of the qualifying requirements and has less than 100 average full-time employees (including affiliated entities) in 2019, it may qualify for ERC on all wages paid during the qualified period. A qualified business with more than 100 average full-time employees is considered a large employee and is only eligible for ERC on wages paid to employees not to perform services.

The credit is 50 percent of up to $10,000 in wages (including health care expenses) per employee for calendar year 2020 (maximum $5,000 credit per employee). There may be limitations for owners and family members of owners.

The credits must be claimed on amended payroll tax returns (Form 941-X). Calculations can be complicated when considering interplay with Paycheck Protection Program (PPP) first draw, FFCRA credits (expanded paid sick leave/emergency FMLA leave), the Restaurant Revitalization Program, Department of Health and Human Services Provider Relief Funds, and other programs. Wages cannot double dip on multiple programs.

2021 ERC (wages paid 1/1/2021 – 9/30/2021)

To be eligible for the 2021 ERC, an employer (including affiliated entities) must demonstrate one of the below:

• At least a 20 percent decline in a 2021 calendar quarter’s gross receipts (on tax return method of accounting) compared to the same quarter in 2019 OR
  • An election is available to use the immediately preceding calendar quarter for eligibility testing (e.g., 4th quarter 2020 gross receipts for Q1 2021 eligibility).
• Full or partial suspension of operation due to a government order in 2021 OR
• Supplier subject to full or partial suspension of operations due to government order that caused operational disruptions to the supply chain.

If the business meets one of the qualifying requirements and has fewer than 500 average full-time employees (including affiliated entities) in 2019, it may qualify for ERC on all wages paid during the qualified period. A qualified business with more than 500 average full-time employees is considered a large employee and is only eligible for ERC on wages paid to employees not to perform services.

The credit is 70 percent of up to $10,000 in wages (including health care expenses) per employee for each 2021 calendar quarter (maximum $7,000 credit per employee per quarter). There may be limitations for owners and family members of owners.

The American Rescue Plan Act of 2021 extended this program through December 31, 2021, but the Infrastructure Investment and Jobs Act of 2021 ended the program September 30, 2021 for all but startup businesses.

Next Steps

If you believe your business may qualify for the Employee Retention Credit, please contact your Lutz Representative or give us a call at 402.496.8800.

Updated on 10.31.2022