Renner Business News; June 27, 2022
As a result of the COVID-19 pandemic, several new programs were created to help businesses survive and continue to pay employees. One of these programs was the Employee Retention Tax Credit (ERTC), which was created with the CARES Act of 2020.
ERTC provides a refundable credit on certain employment taxes paid on qualified wages. Initially, many businesses did not take this credit because they took out a Paycheck Protection Program (PPP) loan—doing so disallowed them from utilizing ERTC. Loosened restrictions now allow more businesses to claim the credit.
Originally available through December 31, 2021, the credit retroactively changed to sunset as of September 30, 2021. However, employers can still claim the credit on wages paid from March 12, 2020 to September 30, 2021, if they qualify, for up to three years after September 30, 2021.
To be eligible for the credit, employers—even those that took out a PPP loan—must satisfy one of three qualifications in each quarter that they wish to use it.
- If a business was fully or partially suspended due to a government order, it may qualify. However, it can only claim the credit for the portion of the quarter that it was unable to operate. This qualification was not widely applicable in 2021, as most businesses continued operations by the end of 2020.
- A significant decline in gross receipts can make a business eligible. For 2020, that meant the receipts that were below 50% of gross receipts compared to the same quarter in 2019. For 2021, it meant a 20% drop in gross receipts compared to the same quarter in 2019, or the preceding quarter.
- Businesses can claim the credit if they are classified as Recovery Startup Businesses, which means they began operations after February 15, 2020, and did not have annual gross receipts of more than $1 million.
Employers that took out a PPP loan are now eligible to also take the ERTC credit. However, the credit cannot be taken on wages paid using forgiven PPP loan funds or PPP loan funds expected to be forgiven.
IRS Revenue Procedure 2021-33 also provides a safe harbor that allows employers to exclude PPP loan forgiveness funds from gross receipts when determining eligibility for the ERTC.
To claim the credit, you must file amended 941s for each quarter you wish to claim.
If you think you may be eligible for the credit or you wish to apply for the credit, please contact Renner and Company with any questions. You can also reach out to your payroll service provider, as many are offering programs to help with claiming the credit.
© 2022 Renner and Company, CPA, P.C. All Rights Reserved.