Was your business shut down or did your sales decrease by 50% in 2020? You may be able to claim an Employee Retention Credit of up to $14,000 per employee.
To find out if you qualify for the Employee Retention Credit (ERC), please see our Alert on the topic.
Basically, the ERC was expanded to allow employers who have a PPP loan to take the credit on wages not covered by the Paycheck Protection Program.
In addition, eligible employers can claim the expanded ERC for 2021 as well as receive PPP Round 2. If you are eligible, you can claim the credit on wages beginning on January 1, 2021 until you receive PPP Round 2. After you receive PPP Round 2 some of your wages might qualify.
Last week, the IRS released a post on how businesses can claim the Employee Retention Credit (ERC), for 2020 on their 4th quarter Form 941, the Employer’s Quarterly Federal Tax Return.
The post highlighted a provision of the new law – section 206(c) - that allows employers to claim the tax credit even if they have received a Small Business Interruption Loan under the PPP. Previously, they weren’t allowed to claim the tax credit and get a PPP loan.
The guidance allows eligible employers to claim the ERC on any qualified wages that aren’t counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.
Therefore, if you're eligible you can claim the ERC on your 4th quarter payroll, if you received a PPP loan and your 24-week payroll period ended September 30th.
You can also report on your 4th quarter Form 941 any ERC attributable to qualified wages and health expenses for the 2nd or 3rd quarter that you did not include in your PPP forgiveness.
The IRS acknowledges there may be some time constraints on doing this right now. “We understand this might be difficult to implement so late in the timeframe to file your 4th quarter return,” the IRS wrote in the notice. “You do not have to use this limited 4th quarter procedure. You can instead choose the regular process of filing an adjusted return or claim for refund for the appropriate quarter to which the additional ERC relates using Form 941-X.”
The latest guidance is in line with the attempt by the SBA to simplify the loan forgiveness process and to have businesses that receive PPP loans also retain their employees. To this end, the SBA recently released revisions to all forgiveness applications, including the simplified form – Form 3508S for applying for loan forgiveness for businesses with loans up to $150,000.
The IRS is expected to issue additional guidance on the ERC and RINA will keep you updated when they do. Please reach out to your RINA professional with any questions.