Employee Retention Credit for Your Practice

Now how many times have you heard this credit floating around over the past year?!

So what is new under the sun? you ask.

Well… actually…. quite a bit.

On November 15th, President Biden signed into law the Infrastructure Investment and jobs Act , which was passed by the Senate this past August. Before the Act, the Employee Retention Credit, which was created in March 2020 to encourage businesses to retain employees, was previously set to expire on January 1, 2022. However the Biden’s new Act repealed the Employee Retention Credit for the fourth quarter of 2021. So the last period you can qualify for the credit is September 30, 2021. This effectively reduces the maximum credit available to eligible employers per employee from $28,000 to $21,000. The only exception to this rule is for eligible employers who qualify as Recovery Startup Businesses . We won’t get into that here. If you have questions about it and/or wonder if you’d qualify for those requirements, feel free to reach out to us.

So now that we’re on the topic, let’s review a bit what this credit includes, who qualifies, and what updates have been made to it. Lots of things have happened since this was first introduced early in 2020, and there is still a lot of confusion surrounding the credit. Let me lay out some of the most frequently asked questions about this credit in the hopes of covering most of what you need to know about it (without boring you to death in the process). Here goes:

Q: My business has been profitable even during the pandemic. Does this mean I don’t qualify for the credit?

A: NO!

Even if you made money and turned a profit throughout the pandemic, you may still qualify for this credit. Instead of inundating you with numbers and dates that would make you want to plunge a shiv into your eye sockets, let’s keep it simple: If your gross revenue for the quarter in question is at least 20% lower than the same quarter of the prior year (and you can use the comparable quarter of either 2020 or 2019 for this calculation!), you may qualify for this credit.

Q: Is it really that big a deal? How much are we talking about anyway?

A: A lot!

The revised credit for 2021 now entitles you to 70% of the first $10,000 of wages per employee . And even though the credit was eliminated for the fourth quarter of 2021, that still gifts you $21,000 per employee for the year (not to mention what you could get for 2020 as well!). That’s a huge savings!!!

Q: I didn’t claim the credit in 2020 or 2021 at all, and now we’re at the end of 2021. Have I lost it?

A: Not at all.

Even if you have not claimed the credit yet and have already filed all your quarterly payroll reports for the quarters in question, you can access the credit by filing a 941X Amended Quarterly Payroll Tax return. In fact, the IRS will accept these amended returns for up to 3 years after the initial filing. That gives you until the end of 2024 to participate in the ERC program.

Q: If I received a PPP Loan, can I still qualify for the Employee Retention Credit?

A: Yes.

Not only can you still get the ERC despite having received PPP funds, the PPP proceeds are NOT included in gross receipts when calculating one’s eligibility for the ERC.

Q: What kinds of employees are eligible for the credit? Can I include independent contractors?

A: No. For the purposes of the ERC, only waged employees (W-2) are eligible . Since the credit is a reduction off the employer’s payroll taxes, it is only logical that the employer should get the credit for employees for which he or she pays those taxes.

Q: If I think I might qualify, but am not sure, what are my next steps?

A: If you’ve read this far and you think you might be entitled to a credit or a refund for the past year or quarters, the first step would be to review quarter-by-quarter profit and loss statements to check if there’s been any drop in sales during the quarters between March 2020 and September 2021. We can certainly help you with that calculation.

Next, contact your payroll provider. You might need to file amended 941 reports in order to claim your IRS refund. Once they’ve amended, allow time for the IRS to process these returns and send you the money. As the IRS is operating very slowly these days, you can expect heavy delays in the processing of the returns and the receipt of your money.

Remember also that amending 941s for prior years and claiming the refund will also result in the need to amend your income tax return. Since the amount you are claiming on your payroll tax forms is less now than it was when you first filed them, the tax write-off you’ll get as a result is smaller too. That needs to be reflected on an amended business tax return. We can help you with that, as well!