Note: We are closely monitoring H.R. 3684, known as the Infrastructure Investment and Jobs Act. The Senate has approved the infrastructure bill and now goes to the House of Representatives for consideration as of the publication. The infrastructure bill would terminate the employee retention credit early, making wages paid after September 30, 2021, ineligible for the credit.
The Employee Retention Credit (ERC) was introduced in 2020 to help businesses that have been affected by the COVID-19 pandemic. Since its release, it has been expanded and modified to help more businesses. Despite all of this, many businesses that are eligible for the credit haven’t filed for it. Did the pandemic impact your business? Don’t assume your business is ineligible. Keep reading to learn more.
What is the Employee Retention Credit?
The ERC allows businesses to claim a deduction for qualified employee wages and related expenses if there was a significant disruption to business because of the pandemic. For businesses with 100 or fewer employees, all wages qualify whether the business was open or closed because of governmental orders. For businesses with more than 100 employees, only wages paid to employees when they weren’t providing services because the pandemic are eligible.
What new guidance was released?
The IRS released Notice 2021-49 on August 4, 2021, which provided additional ERC guidance.
- The ERC was expanded to include wages paid through December 31, 2021.
- “Recovery startup businesses” launched after February 15, 2020, have been added to the definition of eligible businesses.
- Clarifying the definition of a full-time employee, including whether wages paid to full-time equivalents are considered eligible.
- Determining if tips should be considered qualified wages.
- Outlining whether wages paid to majority owners and their spouses are considered qualified.
Keep in mind, the ERC is a complex tax credit with guidelines changing often and requires interpretation. Reaching out to a professional tax advisor who is familiar with the credit and most up-to-date guidelines can help your business determine which wages are eligible and which are not.
What if I missed filing for the ERC?
While some of the newer guidelines are retroactive, others only apply to wages paid more recently. In most cases, employers can file a correction to their quarterly tax documents to receive appropriate credit for qualified wages paid. Keep in mind that wages included in Payroll Protection Plan forgiveness loans are not qualified (no double-dipping!), and businesses must show a decline in gross receipts of more than 50% compared to the same quarter in the previous year.
Also, some tax professionals have noted they are seeing a longer processing time for amended returns. This means you’ll see benefits of the credit faster by filing for it with your quarterly returns; however, it could take 90 to 120 days for amended returns.
How can my business receive help?
If you’re like many businesses and need help understanding the ERC and the recent changes, reach out to our team of qualified professionals for help! We can help you:
- Determine if your business is eligible for the ERC moving forward or file an amended return.
- Understand which paid wages and expenses are eligible to be included in calculations.
- Assist in calculating the amount of credit your company is eligible to take.
- File amended or new returns in relation to your business.
We look forward to helping you!