Employee Retention Tax Credit significantly modified and expanded for businesses
The recent Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, amended and extended the Employee Retention Tax Credit (ERTC) under section 2301 of the CARES Act. Two key changes to the ERTC are:
1. The ERTC is now available retroactively to businesses that received a PPP loan; and,
2. The ERTC is expanded to include wages through 6/30/21
The ERTC can be significant for struggling businesses as it allows for a refundable credit up to $5,000 per employee for 2020 and up to $14,000 per employee for 2021 wages, and the 2021 credit can be requested in advance. So for example, a business that has three employees can potentially receive a total of $57,000: $15,000 now for 2020 and $42,000 in advance for 2021.
To qualify for the ERTC, one of the following two tests must be met:
1. Significant gross receipts reduction, or
2. Partial or full shut down per a government-mandated shut down order during the pandemic*
General requirements are as follows (to enlarge chart, double click on the image):
The credit for prior quarters and for the 4th quarter of 2020, should be requested on the 4th quarter 941 payroll return. However, many payroll companies have already filed the 4th quarter return and the turnaround time needed for an amended return may be significant. Business owners should consider enlisting a ShindelRock tax professional to assist with the calculations as well as prepare the amended return to expedite the refund.
*contact a ShindelRock tax professional for more details