A little known component of the Employee Retention Tax credit provisions, as modified by the American Rescue Plan Act, is that “recovery startup businesses” qualify for employee tax credits during quarters 3 and 4 of 2021 even if they do not meet the general rules to be eligible for ERC tax credits. A “recovery startup business” can claim 70% of the first $10,000 of wages paid to each employee, during the 3rd and 4th quarters of 2021, even if they have not had a “significant decline in revenues” or had COVID related “restrictions on operations” during Q3 and Q4 of 2021. A “recovery startup business” essentially receives tax credits on wages paid during the second half of 2021 without regard to the regular eligibility rules for employers to obtain ERC tax credits—–the logic apparently is that if an employer started operations during the pandemic, they were likely negatively impacted by it and can obtain wage-based tax credits for commencing operations during the pandemic—sort of like a “reward” for beginning operations/starting a business during the pandemic!
An employer is defined as a “recovery startup business” if it meets the following tests:
- The business or non-profit (implied a non-profit qualifies, no guidance from the IRS on this) began operations after February 15, 2020;
- The business/organization had less than $1 million in gross receipts, on an annualized basis, for years ending the quarter before it first claims the ERC tax credit (sounds like years ending on/before June 30,2021). For most organizations, this would seem to indicate that average gross receipts per month, as measured over a one year time frame, were below $83,333 (per month); and
- New businesses/organizations started after February 15, 2021 which belong to a “controlled group” of related employers would generally not qualify as “recovery startup businesses.”
The amount of the employee retention credit which can be claimed per quarter is the LESSER of 70% of the first $10,000 of each employee’s wages/tips subject to FICA tax, or $50,000 for the quarter. The credit is claimed on the employer’s quarterly IRS payroll tax return, Form 941 (or on an amended 941), and would result in a refund check mailed to the employer, by the IRS. AccuPay will assist our employer-clients with claiming this ERC tax credit/IRS refund in the same manner which we have been doing for all of our employer-clients for 2020 and 2021—-at this point we have filed claims which exceed $10 million in IRS refunds and expect millions more of tax credit claims.
PLEASE NOTE THAT THE EMPLOYEE RETENTION TAX CREDIT FOR AN ELIGIBLE RECOVERY STARTUP BUSINESS DOES NOT REQUIRE THAT THE EMPLOYER SUFFERED EITHER A DECLINE IN QUARTERLY REVENUES DURING THE PANDEMIC OR THAT THE EMPLOYER’S OPERATIONS WERE SUSPENDED/RESTRICTED BY GOVERNMENT COVID ORDERS.
If you began operations after February 15, 2020 and have employees on your payroll during Q3 and Q4 of 2021, talk to your CPA/tax advisor about your eligibility for this special category of employee retention tax credit. Also feel free to email Larry Shaub of AccuPay at firstname.lastname@example.org with your questions about your eligibility for this tax credit and how to obtain your IRS check on payroll tax Form 941.
HAVE YOU DETERMINED YOUR ELIGIBILITY FOR EMPLOYEE RETENTION TAX CREDITS FOR 2020 AND 2021? IRS REFUND CHECKS CAN BE HUGE!—DO NOT BLOW THIS!!
Are you an employer whose operations were restricted/suspended during 2020 or 2021 due to COVID government orders, OR you had significant declines in 2020 or 2021 gross receipts/revenues as compared to comparable quarters during 2019? If so, you may qualify for substantial amounts of IRS refunds EVEN THOUGH YOU ALSO GOT PPP LOANS. Talk to your CPA firm or contact Larry at AccuPay to determine your eligibility and the complex calculations involved in determining your IRS refund claims. The actual employee retention tax credit claims are filed on IRS Form 941 payroll tax returns (or amendment of prior quarterly returns.) A LINK TO OUR PREVIOUS PAYDAY EMAILS AND OUR ERC ELIGIBILITY QUIZ IS HERE!
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.