The Employee Retention Tax Credit was offered through the CARES act in 2020. Originally, businesses were not eligible if they received a PPP loan, so almost no one took advantage of it. However, with the updated Consolidated Appropriations Act that passed in December 2020, the government will allow businesses who received PPP loan funds to also apply for the ERTC.
The maximum credit through the ERTC is 50% of wages up to $10,000 with a maximum credit of $5000 per employee for the year.
· Businesses who paid under 100 employees in 2019.
· If during COVID the company had partial or total business closure due to federal, state or local COVID order,
· OR more than 50% reduced gross revenue as compared to the same quarter in 2019. Businesses are eligible until the end of the first quarter where their revenues go back up over 80% compared to the same quarter in 2019.
· New businesses who don’t have 2019 revenue can compare to prior quarters.
Getting the refund –
Per-employee calculations and allowance for the PPP loan amounts must be amended on the 941x form to report corrected information and request for credit.
For 2020, businesses can’t request the ERTC for the same wages used in the calculation for forgiveness on the PPP. Calculations musts be made per employee, per quarter to include the applicable wages to the proper dates.
For 2021, the maximum credit is 70% of wages up to $10,000 for a maximum credit of $7,000 per employee per quarter – so a total maximum credit of $28,000 per employee for 2021.
· Businesses who paid under 500 employees in 2019.
· Partial or total business closure due to federal, state or local COVID order.
· OR more than 20% reduced gross revenue as compared to the same quarter in 2019.
Getting the refund –
Businesses can take the credit against their current payroll taxes as they run payroll, submit a 2021 IRS Form 7200, OR request a refund at the end of the first and second quarters. There’s no guidance yet on the 2nd round of PPP loans or how they will interact with the ERTC.
*Link to FAQs from the IRS.
Information Needed to Get Started
1. Partial or full closure and dates per shut down order OR
2. Quarterly financials from 2019 and 2020 (and 2021 if necessary)
3. PPP loan amount and forgiveness window
Contact your local Payroll Vault office with questions and to start the process of getting your refund.