Quarter 4 COVID-19 Business Update — *FREE* Pre-Recorded Webinar
What are every taxpayer’s two favorite words? Tax credits! The great news is we have a potential tax credit opportunity for you, and it is called the Employee Retention Tax Credit (ERTC). Here is what you need to know to qualify and to claim the credit for your business.
Employee Retention Tax Credit for 2020
To be eligible for the credit, a business must have experienced ONE of the following:
- Partial or full suspension of operations by the government limiting commerce, travel, or group meetings
- A 50% decrease in gross receipts during any quarter as compared against the same quarter in 2019.
If you experienced one of the above, then you are eligible for a 50% credit for the first $10,000 in wages and health care costs paid to each eligible employee. An eligible employee is someone that averages more than 30/hours per week. Next, you will need to determine how many employees you had in 2019. If you have 100 or fewer, then all wages paid qualify, including health care costs. If you have more than 100 employees, then only wages and health care costs paid to employees who you continue to pay during periods of shut down are eligible.
How to get the money
If you have not already reduced your payroll deposit by the amount of credit or filed a Form 7200 or Form 941 with the credit in 2020, the only option now is to file a Form 941-X (not a big deal!). If a Form 7200 was filed, you will need to ensure the information was also reflected on Form 941 for 2020, otherwise, a Form 941-X needs to be filed. A refund is requested by marking “claim” on the 941-X or you can request a carryover credit by marking “adjusted employment tax return.”
Eligibility in 2021
Eligibility for the Employee Retention Tax Credit in 2021 is similar to 2020, except that the credit is only in place through June 30th, 2021. Operations would have to have partial or full suspension during the 1st and 2nd quarter of 2021 OR a 20% decrease in gross receipts during any quarter compared against the same quarter in 2019.
The credit available to qualifying businesses is 70% for the first $10,000 of qualifying wages and health care costs paid to each eligible employee. If you have 500 or fewer employees, then all wages and health care costs qualify, and if greater than 500 employees then only those costs paid to employees who are not working during the shutdown are eligible.
To receive the credit, there are four options in 2021.
- Reduce the next payroll deposit of payroll taxes.
- File Form 7200 no later than April 30th, 2021 for the ERTC. This cannot be filed after Form 941 is filed.
- Report the credit on Form 941 for the 1st quarter by April 30th, 2021. If there is an overpayment you can either apply to the next Form 941 or request a refund.
- File Form 941-X. Select “Adjusted employment tax return” to carry the credit forward or “claim” to get a refund.
No matter what method you choose to receive the credit, the qualified wages and information MUST be reported on Form 941. If it was not, a Form 941-X needs to be filed to report it.
The Employee Retention Tax Credit is not available for the self-employed or certain related individuals. If you received a PPP loan, you WOULD receive the credit still. However, keep in mind that wages used for the ERTC cannot be used for PPP forgiveness. Therefore, if you have already received forgiveness on your loan and used wages toward it, then the same wages cannot be used for credit purposes.
Please do not hesitate to reach out to the staff at MOD Ventures if you have any questions or need help.