If you’re worried that the Employee Retention Tax Credit is expiring at the end of 2021, don’t panic just yet. There is still time for businesses that haven’t claimed the credit to do so. In addition, theIRS has released a new notice providing further guidance about claiming the ERTC.
Basics of ERTC
The ERTC, also known as Employee Retention Tax Credit, is an incentive within the Coronavirus Aid, Relief and Economic Security (CARES) Act to encourage employers to keep employees on their payroll during the COVID-19 pandemic.
Eligible businesses under this can receive a refundable payroll tax credit equal to a percentage of qualified wages. By December 2020, Congress enacted the Consolidated Appropriations Act (CAA), followed by the American Rescue Plan Act (ARPA) in March 2021. These two acts improved the ERTC. They also extended the availability of payments of the credits until the end of this year.
For instance, the ARPA permits small businesses that received a Paycheck Protection Program (PPP) loan to claim ERTC as well. According to Dana Fried of CohnReznick, an employer can claim up to 70% of the first $10,000 of eligible wages paid per employee in each qualifying quarter. It applies to wages, including employer-paid health benefits, incurred from March 13, 2020, to December 31, 2021.
New Guidance on Claiming ERTC as of Aug. 4
On August 4, the IRS released Notice 2021-49. It provided new guidance on the ERTC for employers who paid qualified wages after June 30, 2021, and before January 1, 2022. It also addressed issues on the credit in both last year and this year.
The new notice also addressed the changes made by the ARPA that are relevant to the third and fourth quarters of 2021. The changes are the following, among other things:
- The credit is available to eligible employers that pay qualified wages after June 30, 2021, and before Jan. 1, 2022.
- Eligible employers now include “recovery startup businesses.”
- Updated the definition of qualified wages for “severely financially distressed employers.”
- The ERTC does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARPA.
The new notice also answers questions such as:
- The definition of a full-time employee, and if that includes full-time equivalents.
- The treatment of tips as qualified wage and the interaction with the section 45B credit.
- The timing of the qualified wages deduction disallowance, and whether taxpayers that already filed an income tax return must amend that return after claiming the credit on an adjusted employment tax return.
- Whether wages paid to majority owners and their spouses count as qualified wages.
The IRS imposes no size limit for businesses when claiming the ERTC. However, there is different treatment between small and large companies.
- For employers with 100 or fewer full-time employees, all employee wages qualify for the credit. It’s regardless of whether the employer is open for business or subject to a shutdown order.
- For employers with more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to COVID-19-related circumstances.
So if you own a private-sector business or a tax-exempt organization that experienced the following, then you are eligible to claim the ERTC.
- A full or partial shutdown of operations due to a government order limiting commerce due to COVID-19 during 2020 or 2021.
- Gross receipts decline by more than 50% during a 2020 or 2021 calendar quarter compared to the same quarter in the prior year.
- A “recovery startup” business launched after Feb. 15, 2020, for which the average annual gross receipts do not exceed $1 million, subject to a quarterly ERTC cap of $50,000.
Claim your ERTC with the help of Prestige Accounting Solutions
Many businesses have struggled to stay afloat during the unprecedented pandemic last year. This led to the creation of the ERTC and the CARES Act, among others. These acts provide help to both employees and employers. However, it does involve some accounting legwork to claim the credit. So if you’re struggling to make sense of your business accounting, you can rely on Prestige Accounting Solutions. Our team of accounting professionals will help take care of it. That way, you can keep your focus on your business. So if you believe that your business qualifies for the Employee Retention Tax Credit, call our office today at (833) 672-2268 or visit our website.