ACCOUNTING ON TAP THE EMPLOYEE RETENTION CREDIT BY DAN BERGS, CPA
O
n December 27, 2020, an additional stimulus package was signed into law and part of it will affect payroll tax credits. The Employee Retention Credit (ERC) modifications are significant for businesses that have had declines in revenue or have been shut down due to lockdown orders. Every restaurant and bar that has been closed down for indoor seating or limited for socially distanced seating is likely going to qualify for this credit. Furthermore, for many restaurants, the credit could be tens of thousands of dollars. The ERC is a refundable tax credit for quarterly payroll taxes equal to 50% of the qualified wages an eligible employer pays to employees. If an employer qualifies, the wages paid that could be used for the 2020 credit are from March 12 to December 31, 2020. Companies that took out Paycheck Protection Program (PPP) loans could not participate in this program originally, so it was not as popular. However, the new stimulus bill allows companies that took out PPP loans to utilize this credit as well. Companies can correct their 2020 reporting with these newly implemented changes by reporting their qualified wages and health insurance costs on the fourth quarter Form 941 filing instead of amending previous quarters. Since many restaurants and bars have already filed the Q4 Form 941, they can amend the Q4 filing in order to take advantage of the ERC. Companies should analyze if they then qualify for significant tax credits. Let us dig into some comparisons between the original and modified ERC. ORIGINAL RULES
NEW RULES
How do I qualify for the credit?
1. Business operations must be either fully or partially suspended by a COVID-19 governmental authority shutdown for any quarter in 2020 OR 2. For any quarter in 2020, gross receipts are less than 50% of gross receipts for the same quarter in 2019. Companies can continue to claim the credit until gross receipts in the prior year quarter are more than 80% of what they were in 2019.
1. Business operations must be either fully or partially suspended by a COVID-19 governmental authority shutdown for any quarter in 2021 OR 2. For any quarter in 2021 prior to July 1, gross receipts are less than 80% of gross receipts for the same quarter in 2019.
Is there a limitation based upon number of employees?
No credit is available for employees performing services (only for paying employees to not work) at employers with greater than 100 employees. Employers with 100 employees or less are eligible for the credit even if employees are working.
The employee threshold is now raised to 500 employees from 100 in 2021. Companies with 500 or fewer employees are eligible for the credit even if employees are working.
When is the credit available?
It’s available for qualified wages paid after March 12, 2020, and before January 1, 2021.
It’s available for qualified wages paid after March 12, 2020, and before July 1, 2021.
What is the amount of the credit?
The credit is 50% of the qualified wages paid to the employee plus the cost of health benefits provided to the employee.
Starting on January 1, 2021, the credit is 70% of qualified wages, plus the cost of health benefits provided to the employee.
Is there a maximum amount for the credit?
The credit is capped at $5,000 per employee in 2020.
The credit is capped at $7,000 per employee per quarter (Q1 + Q2). The total credit could be $14,000 per employee.
What if my business took out a PPP loan?
A company that received a PPP loan was ineligible for the ERC.
A company taking a PPP loan can also claim the ERC, but the claimed wages for the credit cannot be wages paid from a PPP loan that has been forgiven. This change is retroactive for wages paid after March 12, 2020.
These credits should not be ignored as they could result in significant cash flow for your business. Reach out to your advisors or feel free to contact me to help with credit computations. TLW Dan Bergs, CPA, is a supervisor in the tax and business services department with Wegner CPAs LLP. The firm has offices in Madison, Baraboo, Waukesha and Janesville. This article is not intended to give complete tax advice, but a general review of subject matter. For more information, please contact Bergs at (608) 442-1986 or dan.bergs@wegnercpas.com. www.tlw.org
MARCH/APRIL 2021
n
On Premise
n
21
