The employee retention credit (ERC) may be a possible source of
government funds you should consider. Recent legislation (December 27) and
recent guidance over the last few weeks has expanded eligibility to businesses
that were previously unable to qualify for this credit.
A few quick questions:
Was your business shut down by government mandate while you
continued to pay wages? If yes, you may qualify.
Did you experience a 50% drop in gross receipts in any one
quarter in 2020 compared to the same quarter in 2019? If yes, you may qualify.
Compare 2021 first quarter gross receipts to 2019 first quarter
gross receipts; did you experience a 20% decline in receipts? If yes, you may
qualify.
Impact of credit on 2020
This credit is potentially $5,000 per employee for 2020. This
will require amending Form 941 for 2020 and will require an adjustment on your
2020 business tax return. Please note,
if you intend to file for this credit, we cannot prepare your business tax
return for 2020 (to include Schedule C of Form 1040) before you file the
amended 941.
Impact of credit on 2021
This credit is potentially $7,000 per employee per quarter for
2021. As of February 11, 2021 it is only available for the first two quarters
of 2021, for a maximum of $14,000 per employee.
Recommendations
We recommend you apply for a refund rather than applying the
credit forward due to delayed processing of mail with the IRS.
We recommend you structure your PPP forgiveness application(s)
to utilize the minimum dollar value of eligible wages (usually 60% of the total
loan amount) allowed to obtain full forgiveness of the loan. The balance
of eligible expenses can be qualifying rent, utilities, or mortgage interest
expenses. This allows you to maximize wages available for the credit.
We recommend you contact your payroll processor as soon as
possible in order to apply for the credit if you believe you qualify. If we are
your payroll processor/payroll tax form preparer, and you believe you qualify,
please contact us immediately for an engagement letter and we will begin
processing your amended 941 Form(s).
