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Although the Infrastructure Bill was signed into law on November 15, 2021, there’s still time for eligible businesses to claim the Employee Retention Tax Credit (ERTC) credit.
The ERTC (Employee Retention Tax Credit) is a one-time Federal refundable tax credit which was designed to reward and encourage businesses to keep their employees on payroll. It has been dramatically expanded to provide more financial relief to a larger group of employers.
This credit is tied to payroll costs similar to the PPP loans. Dissimilar from the PPP loans is the fact that this credit is intertwined with your payroll tax filings, and consequently the associated tax returns filed for your business. As a result, claiming this credit appropriately will require amended returns and is a unfortunately a more complicated process than the PPP loans. In any case, we are urging our clients to take advantage as the money involved is enormous and it is “free” money other than the costs to prepare the claim and amended returns.
How Much is the Credit?
For 2021, an employer can receive 70 percent of the first $10,000 of qualified wages paid per employee in each qualifying quarter, up from 50 percent in 2020.
The possible ERTC is $5,000 per employee for 2020 and $21,000 per employee for 2021.
This is a tax credit—one of the very best things that our tax code has to offer. Although it’s not as valuable as some other tax credits, because a Company has to reduce its payroll tax deductions for the credits, the ERTC certainly puts your Company money ahead.
Who is Eligible?
Companies qualify for the ERTC if they (1) had a decline in quarterly revenue, or (2) were fully or partially shut down due to governmental orders, or (3) began a new trade or business with less than $1 million in average annual revenue.
For 2020, you have two ways to qualify:
- You had a gross receipts drop during a calendar quarter of more than 50 percent when compared to the same calendar quarter of 2019. (The 50 percent test is the trigger for the ERTC and you automatically qualify in the following 2020 quarter.)
- You suffered from a federal, state, or local government order that fully or partially suspended your operations.
For 2021, you have three ways to qualify:
- You suffered a federal, state, or local government order that fully or partially suspended your operations (under this rule, you qualify for the ERTC on the days you suffered the full or partial suspension, even if you did not lose any money).
- Your gross receipts for a 2021 calendar quarter are less than 80 percent of gross receipts from the same quarter in calendar year 2019.
- As an alternative to number 2 above, using the preceding quarter to your 2021 calendar quarter, your gross receipts are less than the comparable quarter in 2019.
You can see by the rules that the government wants to help your small business. We encourage you to explore this credit and claim it as soon as possible.
One final note. You may not double dip. Wages you use for the ERTC may not be used for the PPP, family leave credit, or similar COVID-19 programs. As a result, careful analysis and planning is required to ensure you maximize the combination of these credits and programs – in other words, if you are considering claiming the ERTC, we should consult before you apply for any PPP2 loan forgiveness.
If you would like to discuss your ERTC Claim please contact us at ERTCClaim@vcpa.com to request an engagement letter and fee quotation or call us at (561) 995-0064 to speak with someone on our client service team.
Sincerely,
Lerro & Chandross PLLC
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