Take Advantage of the Employee Retention Tax Credit

The Employee Retention Tax Credit (“ERTC”) was included in the original draft of the Cares Act of 2020 (“Cares Act”). The ERTC is a refundable credit that certain businesses can claim based on wages paid to employees. The credit can be applied to future and/or past payroll taxes paid by your business depending on eligibility. The credit was created as part of the Cares Act in order to incentivize employers to continue paying employees.

Recently, there have been modifications to the ERTC. On December 27, 2020, Congress passed the Consolidated Appropriations Act (“CAA”) decreeing that companies that received Payroll Protection Program (“PPP”) funds were eligible to apply for the ERTC as well. In addition, the ERTC was extended to the first and second quarters of 2021. On March 11, 2021, Congress passed the American Rescue Plan that extended the ERTC through calendar year 2021.

Eligible Employers

• Any employer operating in 2020 with W-2 employees.

Size Classifications in 2020

• Small - Employers with 100 or fewer full-time equivalent (“FTE”) employees.
• Large - Employers with over 100 FTE employees.

FTE is based on the average number of employees in 2019. An FTE is any employee who works at least 30 hours per week.

Eligibility in 2020

Your business is eligible if

1. the operation of your business was suspended either in full or in part during a calendar quarter because of governmental order due to COVID-19,
   OR
2. Your business had a decline of at least 50% in gross receipts compared to the same calendar quarter in 2019.

If Your Business Is Eligible, What Are the Qualified Wages in 2020?

Small Business

• If your business qualified because of a government suspension, all wages, including healthcare, that were incurred by your business during the suspension are qualified wages.
• If your business qualified because of the decline in revenue, all wages, including healthcare, that were incurred by your business during that calendar quarter are qualified wages.
  • Your business will continue to qualify in subsequent quarters for the ERTC until gross receipts of the same quarter return to 80% or greater of the same quarter in 2019. Once the 80% threshold is reached, the following quarter will no longer be eligible.

Large Business

• If your business qualified because of a government suspension, only wages, including healthcare, paid during the suspension to employees who were unable to perform their job functions are qualified wages.
• If your business qualified because of the decline in revenue, only wages, including healthcare, paid to employees who were unable to perform their job functions are qualified wages.
  • Your business will continue to qualify in subsequent quarters for ERTCs until the year-over-year decline is less than 20%.

How Much Is the Credit in 2020?

• 50% of qualified wages with a maximum credit of $5,000 per employee for calendar year 2020.

Size Classifications in 2021

• Small - Employers with 500 or fewer FTE employees.
• Large - Employers with over 500 FTE employees.

FTE is based on the average number of employees in 2019. An FTE is any employee who works at least 30 hours per week.

Is Your Business Eligible in 2021?

It is eligible in 2021 if:

1. Your business incurred a full or partial suspension of operations during a calendar quarter because of governmental order due to COVID-19,
   OR
2. Your business had a decline of at least 20% in gross receipts compared to the same calendar quarter in 2019.

If Your Business Is Eligible, What Are the Qualified Wages in 2021?

Small Business

• If your business qualified because of a government suspension, all wages, including healthcare, that were incurred by your business during the suspension are qualified wages.
• If your business qualified because of a decline in revenue, all wages, including healthcare, that were incurred by your business during that calendar quarter are qualified wages.
  • The 20% revenue decline calculation needs to be completed quarterly to determine eligibility.

Large Business

• If your business qualified because of a government suspension, only wages, including healthcare, paid during the suspension to employees that were unable to perform their job functions are qualified wages.
• If your business qualified because of the decline in revenue, only wages, including healthcare, paid to employees that were unable to perform their job functions are qualified wages.
  • The 20% revenue decline calculation needs to be completed quarterly to determine eligibility.

How Much Is the Credit in 2021?

• 70% of qualified wages with a maximum credit of $7,000 per employee per quarter for calendar year 2021.

PPP and ERTC

• Wages that have been used to calculate PPP forgiveness (or other government programs such as an Economic Injury Disaster Loan, a Work Opportunity Tax Credit, etc.) cannot be used to qualify for ERTC. Wages cannot be double counted.

How Do You Claim the ERTC?

• If you have already submitted your calendar year 2020 tax return or paid your quarterly payroll taxes, you can submit an amended Form 941 and apply the credits to future payroll tax obligations.

DISCLAIMER

***This document is informative only, and is a high-level summary of the program. This should not be read as tax advice. This is PCE’s interpretation based on research and is only applicable as of today. There are nuances that were not discussed in order to keep this article succinct. Readers should consult with a licensed CPA before making any decisions. ***

 

Michael Poole

Investment Banking

mpoole@pcecompanies.com

Orlando Office

407-621-2100 (main)

407-621-2112 (direct)

407-621-2199 (fax)