2020, and all things accounting and tax related to it certainly kept us on our toes and 2021 doesn’t seem to be settling down at all as we slide into tax season like a bombogenesis storm.
The Employee Retention Tax Credit (ERTC for short, ERC for even shorter) is coming around for its sequel. To recap the original ERC trials ~ First you couldn’t claim an ERC if you accepted a Paycheck Protection Program (PPP) Loan, then you could, then it was able to be done retroactively, then it got extended into 2021 (Q1 and Q2), then it got extended to the end of 2021, then it got back tracked to only apply to Q1, Q2 and Q3. There were no less than a half-dozen notices issued by the IRS dealing with the ERC (yes, we read them all), many of them “clarifying” items, if you consider raising more questions than answers “clarifying”.
Our approach to the ERC for 2021 was to let the dust settle… wait for our three branches of government to stop tweaking the rules, see where your revenue and payroll numbers came in, and evaluate if the ERC applied to you and your business based on your specific facts and circumstances.
To qualify for the 2021 version of ERC the business must meet the following criteria:
- Business operations are fully or partially suspended during the calendar quarter due to a COVID-19 related government order; and there was a “more than nominal” decline in revenue for the quarter; OR
- The business experienced a decline in gross receipts (revenue) in the calendar quarter as compared to 2019.
- For quarters in 2021, revenue must have dropped by more than 20% compared to the same quarter in 2019
- To claim the credit, you must have paid employees in that given quarter.
Not everyone will qualify for the ERC, and as part of our approach to your year-end work, we have added the steps of analyzing for this opportunity and we will reach out if we believe that you qualify for a retroactive application of the ERC for the year 2021.
We’ll provide a “back of napkin” preliminary analysis of what we believe you will be able to qualify for regarding refundable credits (refundable credits mean the IRS will send you a check!).
To obtain the credit there will be a few steps (more than a few, but we’ll just give you the executive summary):
- A “case” needs to be made and documented – including government orders, supply-chain disruption, customer base impairment, gross revenue results, and so on…
- The payment and timing of your payroll events needs to be evaluated in consideration of PPP as well as other grant funding.
- Amended payroll filings need to occur to claim the credit.
So, look forward to hearing from us on this one, because that would mean you are most likely eligible for the credit… or not, because that would mean your revenue fell.
Here’s to a more “normal” 2022!
Stay safe, stay healthy, support local