Employee Retention Tax Credit (ERTC)
Based on recent questions from some clients, we want to issue a caution regarding information and solicitations you may be receiving from companies you do not know by mail, email or TV advertising about the ERTC or ERC Credit.
Companies are interpreting the law and claim that you may be eligible for a refund and that you can get a credit regardless of receiving PPP loan forgiveness or having a reduction in income. These companies offer to work with you to obtain a refund and their fee is a percentage of your refund; we have seen fees charged between 15% - 40%. The ERTC credit is new, and it appears many companies are adding services related to the credits to their existing portfolio of services.
The law/regulations for the ERTC are new with the pandemic and have not been tested. This means the IRS and other taxing authorities have not reviewed, accepted or denied the credits received via tax returns and other reporting.
If you want to explore the offers with one or more company, we advise you to make sure you know the company is reputable and has been in business for a number of years. Determine how they will guaranty their work and provide representation to you if the IRS challenges your refund years later.
TBC clearly understands the law as it is written and does not interpret it any other way. We can evaluate whether you qualify for the ERTC based on the tax law. If you qualify, you will need amended payroll tax returns and business income tax returns. If TBC prepares your payroll tax returns, we can prepare the required amendments. If you use a payroll service, they can prepare the amendments. We can prepare amended business tax returns. Our standard fees for tax planning and preparation will apply to our services and we can provide a quote. We do not charge a percentage of your refund.
Following is the information we provided in June which outlines the credit and qualifications. You may still qualify. Please call our office with questions or to schedule time to evaluate your opportunity for a credit.
Details
It is a Payroll Tax Credit taken on an amended Form 941, or 941X.
In 2020 you could not have had both the ERTC and PPP funds.
The 2020 credit is up to 50% of qualified wages on maximum wages of $10,000 per employee per quarter or a $5,000 per employee per quarter maximum.
In 2021 you cannot use the same payroll that was used for any PPP forgiveness, but you can have both ERTC & PPP.
In 2021 the credit is up to 70% of qualified wages on maximum wages of $10,000 per employee per quarter, or a maximum of $7,000 per employee per quarter maximum and is available 1st, 2nd & 3rd quarter of 2021.
Qualifications
To qualify your business must have experienced the following:
The full or partial suspension of operation of your business during any calendar quarter because of governmental orders limiting commerce, travel, or group meeting due to COVID-19.
A significant decline in gross receipts.
For 2020 a significant decline in gross receipts begins on the first day of the first calendar quarter of 2020 in which gross receipts are less than 50% of the gross receipts for the same calendar quarter in 2019.
For 2020 the significant decline in gross receipts ends on the first day or the first calendar quarter following the calendar quarter in which gross receipts were more than 80% of its gross receipts for the same calendar quarter in 2019.
Wages do not include any wages used for a tax credit for sick or family leave under the Families First Coronavirus Response Act.
For 2021 a significant decline in gross receipts is when gross receipts are less than 80% of the same quarter in 2019.
Any ERTC funds received reduce wages in the year for the amended 941. Any ERTC refunds received in 2020 will also result in an amended 2020 income tax return. In 2021 if an income tax return has already been filed, it will also require an amended 2021 return. TBC can prepare any amended tax returns and will provide a quote to do so.
Thank you for your time in reading this important information.
We appreciate your time, support, trust and business and look forward to helping you with these programs.