Over the past few weeks, our tax team has fielded many questions related to the Employee Retention Credit (ERC). We wanted to provide our clients and friends with a quick update as it relates to questions and common misconceptions regarding the ERC.
Below is simply an outline addressing some of the questions that have been presented to our team. As always, we encourage you to consult with your tax advisor or a member of our team before taking any action.
I don’t qualify for the ERC at all.
False. A qualifying business is one whose:
1.operations were fully or partially suspended due to orders from a government authority limiting commerce, travel or group meetings due to COVID-19.
2. gross receipts for any quarter in 2020 were less than 50% of its gross receipts for the corresponding quarter in 2019 OR gross receipts for any quarter in 2021 were less than 80% of its gross receipts for the corresponding quarter in 2019.
You can currently take the credit through December 31, 2021.
My business is too large to qualify for the ERC.
False. All businesses (including nonprofits) may take the credit – headcount only determines the total wages that qualify. For 2021, if a business has 500 employees or less, all wages paid during an eligible quarter or period are eligible for ERC*. If a business has over 500 employees, wages paid to an employee to not provide services during an eligible quarter or period are considered qualified wages for ERC.
*Aggregation rules apply.
I don’t qualify if I don’t have a 20% revenue reduction.
False. A business can qualify if its operations were fully or partially suspended due to orders from a government authority limiting commerce, travel or group meetings due to COVID-19. A 20% revenue reduction is not required under this rule. However, you would have to prove your business was more than nominally effected by the orders to claim the credit.
I definitely qualify if I had a government order, including social distancing.
False. The IRS has issued many guidelines when it comes to qualifying for the credit under imposed government orders. If your business’ operations have been affected by a government order, we encourage you to contact our tax team to walk through your particular situation to determine if your business is eligible to claim the credit.
2020 has passed, so I can’t take the credit for 2020.
False. The ERC can be taken retroactively for 2020 by amending the fourth quarter Form 941 and claiming the full credit.
I received PPP funds, so I am not eligible for ERC.
False. The ERC is allowed in coordination with a PPP loan but can only be claimed on wages not paid with PPP loan funds.
The Smith & Howard team can help me navigate these confusing rules? True!
If you have any questions regarding the ERC please contact Nicole Davis or a member of our tax team at 404-874-6244.