Was your business impacted by COVID-19 closures or experienced significant declines in revenue in the 2020 or 2021 calendar year? The Employee Retention Credit (ERC) under the CARES Act encourages businesses to keep employees on their payroll.
At Liberty Payroll and HR, we are at the forefront of getting information to our clients and other qualified business owners who might not be aware that monies might be due to them because of the recent pandemic and shutdowns. Whether you own a bar, restaurant, construction company, law firm or operate a non-profit organization, you may be eligible for tax credits which come directly from the IRS.
If you were forced to shut down or had to temporarily close your business, or you had a significant decline in gross receipts during 2020 or 2021, then your company or small business may qualify for a payroll refund that is not a loan and doesn’t have to be paid back. Let’s explore some frequently asked questions about the Employee Retention Credit program under the CARES Act.
1. What is the Employee Retention Credit?
The Employee Retention Credit (ERC) under the CARES Act encourages businesses to keep employees on their payroll. This is a refundable credit (The IRS will send you a check). You can apply for the credit for each quarter in 2020, or for the first three quarters of 2021.
2. Who is an Eligible Employer? (Updated November 16, 2020)
Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:
- Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
- Experience a significant decline in gross receipts during the calendar quarter.
3. When is the operation of a trade or business partially suspended for the purposes of the Employee Retention Credit?
The operation of a trade or business is partially suspended if an appropriate governmental authority imposes restrictions on the employer’s operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 such that the employer can continue some, but not all its typical operations.
4. What is a “significant decline in gross receipts”?
A significant decline in gross receipts begins with the first calendar quarter in 2020 in which an employer’s gross receipts are less than 50 percent of its gross receipts for the same calendar quarter in 2019. The significant decline in gross receipts ends with the first calendar quarter that follows the first calendar quarter in which the employer’s 2020 quarterly gross receipts are greater than 80 percent of its gross receipts for the same calendar quarter in 2019, or with the first calendar quarter of 2021.
Confused about the Employee Retention Credit program? Speak to a professional at Liberty Payroll & HR today to see if your company qualifies for an Employee Retention Credit. To speak to a professional call (973) 690-5200 or click here!
5. How is the maximum amount of the Employee Retention Credit available to Eligible Employers determined?
The Employee Retention Credit equals 50 percent of the qualified wages (including qualified health plan expenses) that an Eligible Employer pays in a calendar quarter. The maximum amount of qualified wages considered with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for qualified wages paid to any employee is $5,000.
6. What are “qualified wages”?
Qualified wages include the Eligible Employer’s qualified health plan expenses that are properly allocable to the wages.
The definition of qualified wages depends, in part, on the average number of full-time employees (as defined in section 4980H of the Code) employed by the Eligible Employer during 2019.
For more information, see Determining Qualified Wages.
7. What are “qualified health plan expenses”?
Qualified health plan expenses are amounts paid or incurred by an Eligible Employer that are properly allocable to employees’ qualified wages to provide and maintain a group health plan, but only to the extent that these amounts are excluded from the employees’ gross income.
8. Is an Employer required to pay qualified wages to its employees under the CARES Act?
No. The CARES Act does not require employers to pay qualified wages. In addition, Eligible Employers may elect to not claim the Employee Retention Credit.
9. Can Eligible Employers claim the Employee Retention Credit for qualified wages paid in March 2020?
Eligible Employers may claim the Employee Retention Credit for qualified wages that they pay after March 12, 2020, and before January 1, 2021. Therefore, an Eligible Employer may be able to claim the credit for qualified wages paid as early as March 13, 2020.
10. May an Eligible Employer receive the Employee Retention Credit for wages paid after December 31, 2020?
Yes, the Employee Retention Tax Credit is available to employers who were subject to a significant decline in sales in 2021 when compared to the same quarter of 2019 or who were subject to governmentally mandated shutdowns. However, the program changed significantly:
- Instead of 50% of wages, employers receive 70% of eligible wages
- The $10,000 cap was changed to per quarter per employee instead of per year per employee
- A significant decline in sales was changed from a 50% decline to a 20% decline
*I.E. the credit can be as much as $21,000 for 2021 whereas it could only be $5,000 per employee in 2020.
11. What if I started my business in 2019 or 2020? I can’t compare my sales to a year that didn’t exist. Can I still qualify?
Possibly, there are two ways that you could still qualify.
- A “Recovery Startup” is a business instantly qualified for Q3 and 4 of 2021 with a maximum credit of $50,000 per quarter if it has the following circumstances:
- Operations began after 2/15/2020
- Gross Receipts are less than $1,000,000
- If you started operations in 2019 you may qualify in 2021 by comparing your 2021 sales to the same quarter of 2020.
Editors NOTE: This is only a partial sampling of information required by the IRS to see if your business qualifies for an Employee Retention Credit.
Helpful Resources: https://www.irs.gov/coronavirus/employee-retention-credit
If you are interested in speaking to a professional and learning more, call Liberty Payroll & HR today at 973-690-5200.
About Liberty Payroll & HR
As a local company serving NJ and NY, we understand your business and the laws effecting payroll and HR. We were founded by accountants, and that means accuracy is our mission. Helping our clients understanding Employee Retention Credits is part of our service to our customers. Liberty Payroll and HR continues to lead the way in outsourced payroll services throughout NJ and NYC.
Limited Offer – We are offering this service to non-customers to help see if they qualify for an Employee Retention Credit!
Liberty Payroll & HR offers customized solutions to fit your small business needs. Our payroll and HR services are scalable! Whether your business is small or large or somewhere in between, we will customize a solution with the payroll features to meet your exact needs. Payroll by people, not just software.
Call 973-690-5200 or click here!