EMPLOYEE RETENTION CREDIT – Please make sure you run the qualification tests!
We are all tired of hearing about COVID19 at this stage, but many employers are missing out on Congressional relief funds. There have been three or four massive legislative bills (totaling hundreds of pages) plus continuous follow-on explanations from the Small Business Administration and the Internal Revenue Service. It is easy to understand how many benefits are missed by small business owners.
We at CS3 Technology wanted to make sure our customers and associates do not miss one of the most generous benefit programs available. Many businesses experienced immediate and severe problems as the world shut down in early 2020. The original legislation focused on the immediate threat to our economy. Many of us experienced delayed complications as marketing and sales efforts lagged and supply chain issues devolved. As the epidemic extended beyond initial estimates, additional legislation was passed to assist those delayed repercussions.
At first, the Employee Retention Credit (ERC) was unavailable to those who participated in the PPP Loan program. Additionally, the 2020 credits had more difficult qualifications and the available dollars were much smaller. As the PPP Loans were mostly forgiven and non-taxable, many chose to take advantage of the program and forgot other programs. Legislation in late 2020changed the rules dramatically. Credits for 2020 are limited to $5,000 per employee, while for 2021 the limits are up to $7,000 per employee per quarter.
The basic rules for all quarters: For 2020 and 2021, the ERC credits are available in various amounts from March 27, 2020 through September 30, 2021. The end date was changed from December 31, 2021 by legislation in late 2021. For all periods, coordination of benefits with the PPP Loan, Qualified Sick Leave, and Qualified Family Leave plans is required. You cannot claim multiple benefits for the same wages paid to an employee. In addition, there are tests for all quarters regarding the size of the business based on employee count, and for revenues compared to 2019.
This next area is where many businesses have missed the fine print in the changes that have been passed. For all quarters, the drop in quarterly revenue totals are compared to the same quarter in 2019. Also, pay attention to quarterly totals! I have had several conversations where the assumption was that since the business had an “okay year”, they did not qualify. However, when I pressed them to compare quarter by quarter, while they did not qualify for the full year, they did qualify for specific periods. In some instances, if you qualified for one quarter you automatically qualified for the subsequent quarter.
We cannot possibly boil the facts in hundreds of pages of regulations into one article. Please call us if you do not have anyone advising you. The possibilities are quite substantial, in fact, here are a couple of examples where we have been involved with small businesses in various areas of the country.
· A non-profit organization with 12-15 employees actually had increased revenues for 2020 and 2021, but mainly from year-end gifts. Revenues in one 2021 quarter had dropped by 22% compared to the same quarter in 2019. They qualified for credits surpassing$50,000. Welcome security for an uncertain future.
· A small distributer with 30-35 employees did very well in 2020 assisting with COVID19 prevention solutions. However, as 2021 business slowed, they became eligible in the second quarter of 2021 which also qualified them for the third quarter. Their total credits were close to $450,000. The credits far exceeded their profits for the year due to supply chain issues.
In both cases, the organizations began their economic struggles in 2021 and not in 2020. If you want to be sure you are not missing these benefits and believe we can help, please let us know. We would be glad to assist with an analysis of your facts.
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