By now, I am sure your inbox has been spammed with emails from Lawyers, marketers and other folks that may believe they know more than the next CPA about whether you qualify for the employee retention credit (ERC). I know it does sound hard to believe, but indeed the IRS is issuing major refunds to employers that were paying W2 wages to employees during the Covid-19 pandemic even if you received a PPP loan. The payouts are as much as $15,000 and $21,000 per employee except the owner, for tax years 2020 and 2021 respectively. In order to qualify according to the IRS, the employer must meet one of the following conditions
They sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021.
The business experienced a significant decline (50% decline compared to 2019) in gross receipts during 2020 or a decline in gross receipts (20% decline compared to 2019) during the first three quarters of 2021.
The Employer qualified as a recovery startup business for the third or fourth quarters of 2021. This is limited to those employers that started payroll after Mar 31 2020. The max you qualify under this classification is $50k
However, if you choose to apply for the ERC, it is required for the employer to file an amended income tax return reducing the amount of wages initially taken as a deduction, by the amount of the ERC credit received. For instance, if the gross wages paid and filed on a 2020 tax return was $100,000 for an employer that received an ERC of $20,000. The employer will have to amend that entry by reducing the gross wages to $80,000. Ultimately, the total deductions originally taken will be reduced by $20,000 which will be the taxable income used to determine the taxes needed to be paid to the IRS. Additionally, the qualified wages used to determine the ERC amount has to be reduced by the gross wages reported as the payroll cost compiled to receive the PPP loan forgiveness or any other credits available.
If you have any questions or need assistance with amending business returns, please do not hesitate to reach out to us.