There is a new credit available called Employer Retention Credit, and the IRS clarifications were released just this week. The matters discussed in the law are quite complex but we will summarize it in the below bullet points. You might be able to obtain a refund of up to $7,000 per employee per quarter if you qualify under the below rules. Please first review the below 3 qualification requirements and if you believe you qualify, then contact us:
Qualifications:
SALES LEVEL DECLINE 2021 OVER 2019 (Note we are not talking about 2020 sales but are talking about comparing 2021 sales to 2019):
Sales for 1st quarter of 2021 (January to March) has declined by more than 20% of your sales in 1st quarter 2019 (Note this is not comparing 2021 to 2019 sales but 2021 to 2019). OR
· Sales for 2nd quarter of 2021 (April to June) has declined by more than 20% of your sales in 2nd quarter 2019 (Note this is not comparing 2021 to 2020 sales but is comparing 2021 to 2019). OR
· Same for 3rd and 4th quarters of 2021 over the same quarters in 2019. OR
· Alternative, to claim the credit for 1st quarter of 2021, you can compare 4th quarter of 2020 sales with 4th quarter of 2019 sales
PPP LOAN EXCLUSION: The amount of funds received as a PPP loan is during 2021 must be deducted from the allowable wages before calculating the ERC allowed wages.
OWNERSHIP / CONSTRUCTIVE ATTRIBUTION RULES EXCLUSION: The rules on this are quite complicated, but in summary:
If you are a more than 50% Shareholder of your corporation or entity, then your own wages don’t qualify, but regular employees wages may depending on satisfaction of above items.
· If a related party is an employee, their wages don’t qualify: Related parties include Child or descendant of a child, brother, sister, stepbrother, or stepsister. The father or mother, or an ancestor of either. A stepfather or stepmother. A niece or nephew. An aunt or uncle. A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
· If you own less than 50% of shares of a corporation or entity, your own wages still might not qualify if you have living relatives listed in above.
CREDIT / REFUND AVAILABLE: Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax (or the employer’s share of Medicare tax for the third and fourth quarters of 2021) equal to 70% of the qualified wages they pay to employees from January 1 2021 through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is up to $7,000 per employee per calendar quarter in 2021.
HOW TO OBTAIN THE CREDIT: You have to file an amendment form 941x or a form 7200. Contact us if you wish that we prepare these forms for you if you qualify. Read below for documents needed.
DATA NEEDED IF YOU WANT US TO DO THE ERC CREDIT CALCULATIONS:
1· QUARTERLY SALES DATA Comparing 2021 to 2019:
If we do your bookkeeping, then ask us to check your 2021 versus 2019 to see if there is a decline in sales over 20%. If you do your bookkeeping then provide your bank statements for January to June 2019 and bank statements from January to June 2021. If you are unable to provide us the bank statements, then we would not be able to proceed on obtaining the credit as we need to verify the decline in sales as this is a sensitive area and you will be prone to an audit and we have to have things documented. We have to compare the sales to verify a decline of more than 20% before we can proceed to prepare the amendment, so please provide the bank statements before we proceed.
2. PPP FUNDS RECEIVED:
Total Dollar Amount of PPP Loan Received in 2021:_____________
Date PPP received in 2021: _____________
What amount of the PPP funds received has been used for payroll? We have to calculate how much of the wages of each eligible employee was paid from PPP loan funds and only any wages remaining can be used for the ERC. In order to do so, please provide any information deemed relevant or indicate what amount of the PPP funds is being used for payroll: _____________
3. Ownership: Please indicate:
Who are the owners of the entity and the percentage of ownership of the entity claiming the Employee Retention Credit: __________________
Note: If there are more than one owner, please also mention if there is any relationship between owners described in above under Ownership / Constructive Attribution rules exclusion.
