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  • The Employee Retention Tax Credit (ERTC) is set to expire at the end of 2021, but that doesn’t mean that businesses are out of time to take advantage of the credit. The exact details of the ERTC have changed since it was created by the Coronavirus Aid, Relief and Economic Security (CARES) Act in March of 2020. After multiple extensions, it’s likely that the ERTC won’t be around after Dec. 31, 2021.

    Fortunately for businesses, the most recent updates have made it easier to benefit from the ERTC. Between the Consolidated Appropriations Act and American Rescue Plan, the IRS has loosened its criteria for which businesses qualify and increased how much businesses affected by COVID-19 can claim. Here’s a breakdown of what has changed for the ERTC and how businesses can claim tax credit before it’s too late.

    Key Updates To The ERTC

    Relaxed standards for eligible businesses

    Businesses of all sizes can qualify for the ERTC. There are a variety of factors that the IRS uses to determine if a private-sector business or tax-exempt organization is eligible for the tax credit. These factors have changed over time since the ERTC was introduced in 2020. As of now, the following criteria are used for eligibility:

    • A full or partial suspension of trade or business operations during 2020 or 2021 due to governmental orders stemming from COVID-19.
    • A decline in gross receipts of more than 20% (previously 50%) during a calendar quarter in 2020 or 2021 when compared to the same quarter from the 2019 year.
    • New businesses – called “recovery startup” businesses – created after Feb. 15, 2020, and have average annual gross receipts that are $1 million or less.

    Originally, the CARES act excluded Paycheck Protection Program (PPP) loan recipients from qualifying for the ERTC. That exclusion has changed and businesses that received PPP loans can also qualify for the ERTC retroactive to March 12, 2020.

    Changes to how much businesses can claim

    The credit is based on an eligible business’ “qualified wages.” In the past, businesses with 100 or more employees would only count wages paid while the employer could not provide services due to COVID-19. The CAA changed it so that any eligible business with fewer than 500 employees can consider all employee wages as qualified for the credit whether they are subject to a shutdown order or open for business. In addition, businesses can consider any employer-paid health benefits as part of employees’ qualified wages.

    The exact amount of the credit has also changed since the ERTC was first introduced. The credit was increased from 50% of qualified wages paid during the calendar quarter to 70% thanks to the Taxpayer Certainty and Disaster Tax Relief Act of 2020. That rate was kept when the ERTC was extended through Dec. 31, 2021.

    Eligible employers can apply that 70% to their qualified wages up to a limit of $10,000 per quarter. As a result, employers can receive a maximum quarterly credit of up to $7,000 per employee, or $28,000 combined for all four quarters. However, businesses that received PPP loans will still receive a maximum credit of only $5,000 per employee.

    New exceptions for “severely distressed” employers

    Another change that the American Rescue Plan Act made to the ERTC involved loosening up some of the restrictions placed on what the IRS considered “severely financially distressed employers.” The Act allows employers to claim tax credit for all employee wages up to the limit as long as they can demonstrate reductions in gross receipts of at least 90% compared to the same calendar quarter in 2019.

    How To Claim The ERTC For Your Business

    Any eligible employers must report their total qualified wages and the related health insurance costs on their quarterly employment tax returns to claim credit. For most employers, this will require filling out Form 941 and including relevant information for each quarter. The final date to claim the ERTC is now Dec. 31, 2021.

    Businesses that may have previously missed opportunities to claim the ERTC are also in luck. Eligible businesses can retroactively claim an ERTC refund on qualified wages paid for past quarters within the ERTC timeline. Employers would need to file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, in order to make up for that lost opportunity.

    While the deadline is Dec. 31, 2021, it’s best to collect all the required documentation and submit it to the IRS earlier than that date. The quicker a business files this information, the sooner it will receive ERTC funds, as turnaround times are roughly 30 to 60 days. This need for prompt filing is especially true for Form 941-X. The estimated turnaround time for retroactive claims is roughly 90 to 120 days, and there could be significant delays as the IRS addresses its current backlog of 941-X returns.

    Prepare Your Business For The ERTC And More

    While it’s easier to qualify for the ERTC in 2021 than in the past, it’s still not a simple process. Employers still need to parse through a lot of payroll data to even determine if they’re eligible – and then they’ll have to collect and complete even more documentation to claim those important funds.

    If that sounds like a lot of complicated, tedious work, it is. That’s why so many businesses partner with GMS to manage their payroll administration and stay on top of ongoing legislative changes. While our experts take on time-consuming tasks in payroll processing and tax management, you can focus on your own business and make the most out of opportunities like the ERTC.

    Ready to simplify your business? Contact GMS now about how we can help you stay on top of tax credits and more.

  • In response to the economic impact of the COVID-19 outbreak, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. Among many different types of loans and incentives, the CARES Act introduced tax relief for businesses in the form of payroll tax credits, enhanced net operating loss (NOL) deductions, and payroll tax deferment. However, the payroll tax deferral section of the CARES Act raised several questions for small and medium-sized businesses, especially those that received loans from the Paycheck Protection Program (PPP).

    To help answer these questions, the IRS released guidance on April 10, 2020, regarding payroll tax deferrals. Here’s what business owners need to know when it comes to paying taxes on social security this year.

     Small business owner defers payroll taxes under CARES Act.

    What deposits and payments can employers defer?

    Section 2302 of the CARES Act enables employers to defer certain payroll taxes, specifically the employer contribution of Federal Insurance Contributions Act (FICA) taxes, otherwise referred to as the employer’s portion of social security taxes. Typically, employers are required to pay 6.2 percent of social security taxes for each employee’s covered wages on a semi-weekly or monthly basis.

    The deferral applies to deposits and payments of the employer’s share of the 6.2 percent social security tax owed for 2020. Without the CARES Act, this tax would have otherwise been required to be made during the period beginning on March 27, 2020, and ending December 31, 2020. There is no dollar cap on the total amount of an employer’s social security taxes that can be deferred.

    It’s important to note that the CARES Act does not cover other payroll taxes, such as the Medicare tax (1.45 percent) or the employee’s share of the social security tax. The CARES Act does, however, outline tax deferrals in an equivalent amount for self-employed individuals subject to the Self Employment Contributions Act (SECA) and employers and employees subject to the Railroad Retirement Tax Act (RRTA).

     

    When are deferred tax payments due?

    In order to avoid penalties, the deferred payments of the employer’s share of social security tax must be deposited by the following dates:

    • On December 31, 2021, 50 percent of the deferred amount must be paid.
    • On December 21, 2022, the remaining amount must be paid.

     

    Who is eligible to defer tax payments?

    All employers, regardless of size, may defer the deposit and payment of the employer’s share of social security tax. However, employers who received PPP loans become ineligible to continue deferring tax payments after receiving notice from the lender that the loan is forgiven. The Small Business Administration (SBA) says “the loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities” if you are able to maintain your workforce.

    For payments deferred through the forgiveness date, employers may continue to defer payments until the end of 2021 and 2022 as described above without incurring penalties for failure to pay. The CARES Act also states that employers who have had a loan forgiven under the U.S. Treasury Program Management Authority are also ineligible to defer payments.

     

    Do employers need to make special elections to defer tax payments?

    No, employers do not need to make any special elections to defer deposits and payments for payroll taxes. The IRS will revise the Employer’s Quarterly Federal Tax Return (Form 941) for the second quarter (April through June 2020). The IRS says information will soon be released regarding deposits and payments otherwise due on or after March 27, 2020, for the first quarter (January through March 2020).

    Contact us if you have any HR or payroll-related questions on how to keep things running smoothly through this transition. 

  • As the Coronavirus impacts businesses everywhere, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide some financial support during difficult times. The $2 trillion Coronavirus stimulus package contains a $349 billion lending program for small businesses, along with other means of relief.

    For small business owners, this news provides a form of respite in a difficult time. Of course, now these employers may ask how these loans work and whether they can access them. Read on to find out if your business can apply for a loan and how they impact your operations.

    Money from a CARES Act small business loan granted to a business impacted by the Coronavirus. 

    Is My Business Eligible for CARES Act Loans?

    As long as your business has fewer than 500 employees, it’s eligible for a loan. The stimulus package applies to businesses from all states and territories and even extends to self-employed individuals, independent contractors, and sole proprietors. The CARES Act does prioritize certain types of businesses, such as those in under-served and rural markets or businesses that are less than two years old.

    What Financial Assistance is Available for the Coronavirus?

    The CARES Act lays out a couple of different forms of financial relief for small businesses. The most notable of these is the $349 billion Paycheck Protection Program, which will provide partially forgiven loans depending on how businesses use them.

    Paycheck Protection Program Loans

    According to the CARES Act, businesses can receive a loan of 2.5 times the businesses’ monthly payroll up to $10 million. The exact amount your company can receive is based on how much you paid your employees between Jan. 1 and Feb. 29, plus 25 percent of that total amount. These loans have a fixed interest rate of one percent regardless of business type (the final rates, underwriting standards and other terms and conditions are to be determined). The Small Business Administration also notes that it will “forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll and certain other expenses following loan origination” if you are able to maintain your workforce.

    In addition, the CARES Act incentivizes employers for using loans for what it considers allowable purposes. By doing so, your Paycheck Protection Program loan can be forgiven and you’ll only need to pay back accrued interest on your loan if you use the loan for the following:

    • Payroll costs
    • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
    • Employee salaries
    • Interest payments on any mortgage
    • Rent and utility payments
    • Interest payments on any other debt obligations that were incurred before Feb. 15, 2020

    Economic Injury Disaster Loans

    In addition to the $349 billion lending program, the CARES Act also allotted $10 Billion for the Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDLs). According to Forbes, the expanded provisions mean that:

    • EIDLS can be approved by the SBA based solely on your credit score (a prior bankruptcy won’t disqualify your business)
    • EIDLs smaller than $200,000 don’t need a personal guarantee for approval (real estate is also not required as collateral)
    • Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage/lease payments, or repaying obligations that cannot be met due to revenue loss
    • EIDLs are now accessible for sole proprietors, independent contractors, tribal businesses, cooperatives, ESOPs with fewer than 500 employees, and all non-profits

    How Do I Apply for CARES Act Loans?

    If you’re want to apply for a Paycheck Protection Program loan, you can do so at any lending institution approved to participate by the SBA. You can apply for EIDLs online at the SBA website. 

    Contact us if you have any HR related questions on how to keep things running smoothly through these difficult times.