Note: We are closely monitoring H.R. 3684, known as the Infrastructure Investment and Jobs Act. As of the publication of this article, the infrastructure bill was approved by the Senate and now goes to the House of Representatives for consideration. The infrastructure bill would terminate the employee retention credit early, making wages paid after September 30, 2021, ineligible for the credit.
Introduced in 2020, the Employee Retention Credit (ERC) was created to help businesses who have been affected by the COVID-19 pandemic. Since its release, it has been expanded and modified to help more business. Despite all of this, many businesses who are eligible for the credit haven’t filed for it. Was your business impacted by the pandemic? Don’t assume your business is ineligible. Keep reading to learn more.
What is the Employee Retention Credit?
The Employee Retention Credit (ERC) allows businesses to claim a deduction for qualified employee wages and related expenses if there was a significant disruption to business due to the coronavirus pandemic. For businesses with 100 or less employees, all wages qualify whether the business was open or under shutdown orders. For businesses with more than 100 employees, only wages paid to employees when they weren’t providing services due to the pandemic are considered qualified.
What new guidance was released?
On August 4, 2021, the IRS released Notice 2021-49 that provided additional guidance for the ERC. Here’s a summary of the changes:
- 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 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 some interpretation. Reaching out to a professional tax advisory who is familiar with the credit and new guidelines can help your business determine what wages are eligible and what 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 the Payroll Protection Plan forgiveness loans are not qualified (no double dipping!) and businesses must show a decline in gross receipts of more than 50 percent compared to the same quarter in the previous year.
Also, some tax professionals have noted they are seeing a longer processing time in amended returns than for returns initially filed. 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 made, reach out to our team of qualified professionals for help! We can help you:
- Determine if your business is eligible to file for the ERC moving forward or file an amended return.
- Understand what 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 for your business.
We look forward to helping you!