What is it? The Employee Retention Tax Credit (ERTC) is a refundable tax credit against taxes to be paid on the quarterly 941s. This tax credit is available to small businesses who have had a significant reduction in gross tax receipts between March 12, 2020 and December 31, 2021 when compared to specific periods (more on that below). Credit amount may be up to $5,000 per employee for 2020 or $7,000 per employee for each quarter in 2021 (up to $28,000 in total for 2021). Are you eligible for the Employee Retention Tax Credit?
When the ERTC was first introduced, employers who had received a PPP loan were not eligible for the ERTC. However, a December 2020 law changes the rules and now allows employers who received the Round 1 PPP loan, to also receive the ERTC, if they qualify. With the American Rescue Plan signed into law on March 12, 2021, the ERTC credit was extended.
Is your company eligible for the ERTC? The rules for eligibility in 2020 are different than the rules for 2021. Please review each year to see if you are eligible.
- 2020: Did you average less than 300 Full-time employees in 2019?
Did you have at least a 50% reduction in Gross Receipts when comparing one quarter in 2020 to the same quarter in 2019?
- 2021: Did you average less than 500 Full-Time employees?
Did you have at least a 20% reduction in Gross Receipts in a quarter, when compared to the same quarter in 2019 or one quarter prior? For Example, you may compare first quarter 2021 to first quarter 2019 or fourth quarter 2020. Are you eligible for the Employee Retention Tax Credit?
What to do if you think your company is eligible? If you find that your company may be eligible for the ERTC in 2020 and/or 2021 please go to https://www.cpspeo.com/ertc/ and fill out the questionnaire. This questionnaire will provide CPS the information needed to provide you the correct payroll reports. If you do not know your gross tax receipts for the 2021 quarters, you may put $0.00 or estimate what you think those amounts will be.
How to determine the amount of the credit: While CPS can provide the reports that can be used to help determine what your credit should be, there is information needed, that CPS does not have. We highly recommend consulting with your CPA to help determine the credit amount.
- 2020: For quarters that qualify for the ERTC, you may take a credit of up to 50% of an employee’s wages with a cap of $10,000 in wages for all of 2020 ($5,000 max credit per employee).
- 2021: For quarters that qualify for the ERTC, you may take a credit of up to 70% of an employee’s wages with a cap of $10,000 in wages per quarter (max credit of $7,000 per quarter, $28,000 for all 2021).
What qualifies as wages? Wages that qualify for the ERTC vary between 2020 and 2021. However, one of the commonalities between the years, is that if wages were used for the PPP loan or the FFCRA (PSL and EFMLA), those wages cannot be used for the ERTC, the IRS considers that to be double dipping.
- 2020: Wages paid between March 12, 2020 and December 31, 2020. These wages are generally social security wages and an employer’s share of a qualified health plan expense.
For employers with less than 100 full-time employees in 2019, all employee’s wages paid during the qualified quarters are eligible.
For employers with 100 or more full-time employees in 2019, only wages paid to employees NOT performing services, during the qualified quarters are eligible.
- 2021: All wages paid during 2021 may qualify.
For employers with less than 500 full-time employees in 2019, all employee’s wages paid during the qualified quarter are eligible, as long as those wages were not used for PPP Loan Purposes.
How to receive your ERTC: You will provide CPS with the amount of the credit that is to be received.
The credits are to be taken against an employer’s payroll taxes and reported on form 941. However, as everything is reported under CPS’s tax id number and therefore reported on CPS’s 941, CPS must be the company to take the credit. We will however, put the credit on your payroll invoices (just like we have with the FFCRA credits).
As we are not able to determine that amount of the credit you should receive, do to not having complete information, we must rely on you to provide us with the credit amount. We will also be requiring backup to show how you determined your credit. The details of what will be needed have not been decided at this time but will most likely be on a per client basis.
We are still waiting on IRS guidelines to determine what they will be requiring as well.
Important Notes about the ERTC: We are awaiting guidance from the IRS to determine how the retroactive ERTC will be done. Until we have guidance on this, we cannot give credits for 2020. However, if you determine the amount of credit you should receive, once we receive guidance the credit will be given.
Wages used for ERTC are not eligible for a deduction on your taxes. Again, this would be considered double dipping. Keep in mind, it is only the amount credited for the ERTC.
- For example, if you use $10,000 in wages for 2020, and receive a credit for $5,000, that $5,000 that was credited, is not eligible as a deduction, but the remaining $5,000 is. For 2021, if you used $10,000, $7,000 is not deductible, but the remaining $3,000 is.
Self-employed individuals can claim the credit for their employee’s but not themselves.
CPS in not responsible for incorrect calculations of the ERTC. If there was an error on the amount of credit given to CPS, your company is responsible for making any corrections.
In Closing: While the ERTC can be very beneficial to a company that had a drastic decline in gross receipts, it can be very complicated and confusing. We strongly recommend consulting with your CPA to help determine what the credit will be.
As will all other credits that have been given during this pandemic, CPS is here to help, and give you the resources necessary to maximize your credits.
We will continue to provide updates on the ERTC and all other credits as they are released. Check out additional information on the IRS website.