We have talked to many employers who are not aware that they qualify for the employee retention tax credit (ERC). The original CARES Act legislation provided that an employer could EITHER apply for a PPP loan OR calculate and claim ERC credits. Since most employers chose to apply for PPP loans, little thought was given to the ERC tax credit provisions in 2020. On December 27, 2020, a law was enacted that permitted employers who received PPP loans to ALSO claim employee retention tax credits, if they were “eligible” for the ERC—and this law change late 2020 was retroactive to wages paid after March 12, 2020 with the ERC now being extended (subsequent law) to the end of 2021/this year. We believe that “PPP/stimulus fatigue” has settled in such that many employers are simply not aware of the potentially huge tax refunds they can obtain from the ERC payroll tax credit program. At this point, AccuPay has filed claims for nearly $5 million of ERC tax credits from the IRS, from both year 2020 and into 2021.
EVERY EMPLOYER SHOULD DETERMINE IF THEY ARE ELIGIBLE FOR EMPLOYEE RETENTION TAX CREDITS OR NOT—-TAKE THIS SHORT QUIZ BELOW!!
An employer is eligible for Employee Retention Tax credits IF they meet EITHER-OR (not both) of the 2 below eligibility criteria:
1.) The employer sustained a full or partial “suspension” of “normal” operations due to COVID 19 government orders, which resulted in limitations on “commerce, travel, or group meetings.”
Such government orders were common for retailers, restaurants, healthcare practices and many others. Examples of “partial suspensions” of operations can be found by clicking on IRS Notice 2021-20 and also IRS FAQ’s on ERC’s. Some employers have had COVID government order restrictions since March of 2020 which still continue today (think inside dining at restaurants). Others have had COVID 19 government orders adversely impacting their operations for a specific period of time, such as dental practices shutting down due to government order back in the March-May timeframe. Employers who had partial or complete suspensions of operations by government orders are ELIGIBLE for ERC credits during the period of time their operations were “suspended/impacted” in 2020 and/or 2021
DID YOU HAVE NORMAL OPERATIONS SUSPENDED BY GOVERNMENT ORDERS PERTAINING TO COVID AT ANY TIME STARTING MARCH 13, 2020?—–IF YES, you are ERC eligible
2.) The employer experienced a “significant decline in gross receipts” for at least one quarter during 2020 or 2021 as compared to the same quarter in pre-pandemic 2019. A significant decline in gross receipts for calendar year 2020 requires a calendar quarter whose gross receipts declined by greater than 50% as compared to the same quarter in 2019. For year 2021, a significant decline in gross receipts requires a calendar quarter whose gross receipts declined by greater than 20% than the comparable quarter in 2019 (for 2021 purposes, an employer can use the “immediately preceding quarter” in place of the current quarter in which to make the gross receipts decline calculations (Example—IF your Q4 2020 gross receipts declined by at least 20% compared to Q4 of 2019, your Q1 2021 quarter meets the “significant decline” ERC test even if Q1 of 2021 did not decline by more than 20%.)
- DID YOU HAVE ANY QUARTER DURING 2020 IN WHICH YOUR QUARTERLY RECEIPTS DECLINED BY MORE THAN 50% AS COMPARED TO THE SAME QUARTER IN 2019?
- DID YOUR Q4 2020 GROSS RECEIPTS DECLINE BY MORE THAN 20% AS COMPARED TO Q4 OF 2019?
- DID YOUR Q1 2021 GROSS RECEIPTS DECLINE BY MORE THAN 20% AS COMPARED TO Q1 OF 2019?
IF YOU ANSWERED “Yes” to any of the above 3 statements, you are ERC eligible for 2020/2021 or both
SPECIAL NOTE—-ERC eligibility is an “EITHER-OR” fact pattern, NOT BOTH. An employer could be ERC eligible based on government order restrictions due to COVID, even if their gross receipts did not decline during the pandemic compared to 2019 (A restaurant’s outside/drive-through sales offset the decreased restricted indoor dining sales). Also, an employer could be ERC eligible based on a decline in quarterly gross receipts/revenues even though they did not have any COVID ordered restrictions (such as losing revenue from a large customer during a quarter, resulting in a 20% or 50% decline in gross receipts, unrelated to COVID.)
CONCLUSION—–Take the above Quiz to determine IF you are eligible for what are generally substantial employee retention tax credits. If you believe you are ERC eligible, we strongly encourage you to contact your CPA firm to help you with what are generally complex calculations—but which often produce substantial tax refunds from the IRS.
AccuPay’s role is educating clients and others on ERC/PPP concepts, and actually filing the payroll tax returns required to claim the ERC tax credits. We prefer to work with CPA firms as to calculations needed to claim the tax credits. We are happy to answer your questions about your eligibility for ERC tax credits.
Our previous PayDay about planning to optimize the ERC credits while also attaining complete PPP loan forgiveness is included here as a reminder as to how the PPP/ERC programs work.
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.