By Rick Perry
Economic & Business Development – Your Strategy Partners
Was your business impacted by the pandemic? While some businesses thrived during the pandemic, there were many who were required by law to fully or partially shut down for a period of time. These (mostly small businesses in SWFL) have a very good chance of qualifying for the ERC. Restaurants, Hotels, Dentists, Doctors, retailers, service industries, and even “essential” businesses who did not shut down, but may have closed showrooms or experienced supply chain disruptions and delays of operation that affected cashflow.
“The Internal Revenue Service urges employers to take advantage of the newly-extended employee retention credit, designed to make it easier for business that, despite challenges posed by COVID-19, choose to keep their employees on the payroll.” (IRS.gov). In order to provide economic relief to businesses and individuals during the Coronavirus pandemic, the CARES Act was signed into law in March 2020. This $370 billion stimulus package makes funding available to small companies, which can be used to allow certain employers who retain employees during the crisis, to claim a tax credit. This tax credit is known as the Employee Retention Credit (ERC).
Who is an eligible employer?
Any private-sector business or tax-exempt organizations that carries on a trade or business that meets either of the following:
- A business that experienced a significant decline in gross receipts during any quarter (2020-21).
- A business that was fully or partially suspended due to orders from the government limiting commerce, travel or group meetings due to COVID-19.
This also includes reduced operating hours. Even if you were an “essential” business, you can qualify, if the pandemic had an impact on your supply chain or customers, which caused significant delays or difficulties receiving & providing normal product orders & supplies.
Currently, companies can qualify for up to $19,000 per employee! Employers may claim the ERC for qualified wages paid starting March 12, 2020.
The CARES Act
The CARES Act controls the ERC for 2020. The ERC allows eligible employers to claim a credit against 50% of wages paid per quarter, up to $10,000 per employee annually, for wages paid between March 13 and Dec 31, 2020. The maximum credit is $5,000 per employee. In December of 2020, under the Covid-19 Relief Package, the ERC was extended from January 1 to Dec 31, 2021. This extension allows eligible employers to claim a credit against 70% of wages paid per quarter, up to $10,000 per employee, with a maximum allowable credit of $7,000 per employee per quarter ($28,000 per employee for 2021.)
Employers who received PPP loans may still qualify for the ERC with respect to wages that are not paid for with forgiven PPP proceeds retroactive to the CARES Act. It also allows new employers who were not in existence for all or part of 2019 to be able to claim the credit. This new provision is retroactive to the effective date included in Section 2301 of the CARES Act.
The Big Change for 2021
Expanded eligibility with lower threshold for “a significant decline in gross receipts.”; Extension of the ERC to Dec 31, 2021; It is now worth up to $7,000 per quarter in credit, per employee; and employers up to 500 employees can qualify.
Employers don’t have to wait until 2021 is finished to receive their tax credit. Employers can apply now and receive what they qualify for in 2020, and the first two quarters of 2021.
This process generally takes the company’s bookkeeper/controller about 2-3 hours to collect the financial data required. But the pay-off could be significant. For example, 15 employees x up to $19,000 = $285,000 for 2020 and Q1 & Q2 of 2021. The ERC requires wages paid related to PPP, and some other tax credits will need to be backed out, but this can still be quite lucrative for employers. However, if you did not take the PPP, and/or were shut down, the ERC could be quite helpful to get you financially back on track. You receive a free estimate of what you can recover, and then fees are contingency based. Your tax incentive specialist can supply you with the documentation needed to apply and receive your ERC tax credit by filing form 941,
Employer’s Quarterly Federal Tax Return, and for an advance cash payment of Employer Credits Due, Form 7200. Don’t delay, call today!
Reprinted with the permission of Southwest Florida Business Today®.
About Your Strategy Partners
Rick Perry is Managing Member of Your Strategy Partners, a business and tax incentive consulting firm in Bonita Springs. For more information about the ERC and other tax credits for business owners and commercial building owners, contact him at [email protected].