Necessary Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) was introduced in an attempt to minimize the fallout from COVID-19. The Employee Retention Credit was introduced as part of the CARES Act, initially passed in March of 2020. This package was proposed to support Americans and businesses impacted by the pandemic. Hundreds of thousands of people were laid off and the unemployment rate reached new heights. Today, the pandemic is still leaving aftershock effects on businesses of all sizes.
Keeping great employees with a business in times of turmoil was the main purpose of the ERC. Instead of furloughing/firing individuals, the ERC was able to help keep employees paid at businesses from small to large. The ERC is defined as a fully refundable tax credit that relates to full-time employees from March 13-December 31, 2020. The credit was extended into 2021 with somewhat different terms.
The changes that the Consolidated Appropriation Act of 2021 incited (approved around December 2020), made some essential changes. Those changes are listed below:
Major Adjustments to the ERC The retroactive alterations that exist include:
Payment Protection Program (PPP) Loans
Businesses that qualified and received the PPP loans qualify for ERC wages not paid with the loan money.
Gross receipts are clarified by the CAA and how to calculate those receipts with assistance on how to determine eligibility.
Wages that fit in the qualified category include various group healthcare expenses, even without other wages paid to employees.
Adjustments for 2021
Before the credit was 50% per employee of qualified wages with a total limit of $10,000/year in 2020. The rate increased to 70% of total wages/employee with a limit of $10,000 per quarter in 2021.
Eligible periods in 2021 were quarters when gross receipts were 20% less than in 2019. For 2020, that number was exactly 50%. The CAA states clearly that businesses that didn’t form in 2019 can compare gross receipts to quarters in 2020.
Public colleges and universities now provide ERC. Those qualified also include medical or hospital care organizations and those organizations chartered by Congress.
Large Employer Definition
Large Employers are defined as one with more than 100 employees. For 2021, a large employer has more than 500 employees.
Qualified Wages Limit
Qualified wage limits can be more than the worker would have normally made in the 30 days before the qualifying period.
With fewer than 500 full-time employees, businesses may receive advance ERC payments in the quarter that employees originally received wages.
Many of these adjustments can be confusing for businesses that want to utilize the ERC. Make sure to reach out to experts if need be to correctly understand how the CAA impacts important business tax credits.
6 Important Tips When Applying for ERC
These changes made it more difficult to apply, because the major differences. SOme tips on applying with the new changes are highlighted below:
1. Do You Qualify?
The majority of businesses qualify for the ERC. A trade or business that was suspended (fully/partially) due to various government orders or one that experienced a major decrease in gross receipts qualifies.
2. What Wages Qualify? Understand What Wages Qualify
The compensation that is subject to FICA taxes and various qualified expenses related to healthcare is used to calculate ERC. Tips are included if they are subject to FICA taxes.
3. How Is It Issued?
ERC is issued as a cash payment from the IRS and is not considered an income tax credit. Qualified businesses claim the credits immediately.
4. Can I Claim Both the ERC and PPP Loan?
It is still possible to claim the ERC if there was a PPP loan due to the new CAA adjustments. Making sure to claim only the credit for qualified wages that weren’t originally payroll costs is crucial.
5. Additional Credit Eligibility
Not taking more than one overlapping credit is very important. Employers can’t take the ERC and another credit on the same wages for leave relating to paid family. Employees included in certain work opportunity tax credits are also not included.
6. What is the Deadline?
Look up the File Form 941-X, Adjusted Employer’s Quarterly Payroll Tax Return through the IRS within three years following initial returns.
Read carefully through all documents and make sure to fully understand the process. Reach out to experts if help becomes needed.
Reach Out Today
Working through these changes is difficult and often time-consuming. The Consolidated Appropriation Act of 2021 made some important changes that must be noted. ERC Benefits are your helping hand when it comes to anything credit! We are your best source for reliable, expert, and ideal tax consulting services with quick and efficient filing processes. Not only is our team ready to help right away, the team is happy to answer your questions.