Information provided by Mueller Pye & Associates CPA
The Employee Retention Tax Credit (ERTC) was enacted by The CARES Act in March 2020. Under the original rules, the ERTC was not available to PPP Loan borrowers.
As a result, it didn’t attract a lot of attention until recently.
As part of the Covid Relief Bill signed into law on December 27, 2020, Congress made two big changes to the ERTC:
- First, the ineligibility to PPP Loan borrowers was retroactively eliminated. That means PPP Loan borrowers can now go back and amend their payroll tax filings for 2020 to claim refunds to the extent they qualified for the ERTC during 2020. As explained below, these refunds could be as much as $5,000 per employee.
- Second, Congress extended the ERTC through June 30, 2021 and significantly increased the benefit to as much as $14,000 per employee.
How Can I Tell If I’m eligible for the ERTC?
For 2020, Employers were eligible to claim the ERTC if either of these two things happened:
- Your operations were fully or partially suspended due to a COVID-19-related governmental order, or
- You experienced a more than 50% reduction in gross receipts for one or more calendar quarters of 2020, as compared to 2019.
For 2021, Employers are eligible for the first half of 2021 if any one of these three things happened:
- Your operations were fully or partially suspended due to a COVID-19-related governmental order; or
- 1st or 2nd quarter 2021 gross receipts fall by more than 20% compared to the same quarter of 2019; or
- 4th quarter 2020 gross receipts fell by more than 20% compared to the 4th quarter of 2019. This test, though, only qualifies an employer for the ERTC for the 1st quarter of 2021.
If I’m eligible, how much is the ERTC?
For 2020, the maximum ERTC is 50% of qualified wages up to $10,000 for a maximum credit of $5,000 per employee.
For 2021, the maximum ERTC is 70% of qualified wages up to $10,000 per employee, per quarter, for a total maximum ERTC of $14,000 per employee.
How do I claim the ERTC?
For 2020, the IRS recently announced employers can amend their quarterly payroll tax filings (Form 941) to claim the ERTC. This is particularly relevant to PPP Loan borrowers who were thought to be ineligible up until the retroactive law change on December 27, 2020. ·
However, an employer that received a PPP loan may not use the same wages reported on their PPP forgiveness application in computing the ERTC.
For 2021, the ERTC is claimed as a holdback against the employer’s required payroll tax deposits. As an alternative, an employer can request the credit in advance, which will then be reconciled on the next quarterly payroll tax filing (Form 941). For employers participating in the second round of PPP Loans, the anti-duplication rule for wages (described in the preceding paragraph) will continue to apply.
The ERTC seems awfully complicated!
Yes, it is, particularly the retroactive eligibility applicable now for PPP Loan borrowers in 2020.
Because these are payroll tax credits, be sure to contact and work with your payroll provider to see how they can help you claim the tax credits you are entitled to.
Based on the per employee amounts, the ERTC can add up to real money fast!