Guiding Your Path to Maximized Tax Credits
At StenTam, we specialize in helping you unlock the tax credits you deserve for your childcare business. Let us navigate the process and lead you to the credits that can make a significant impact on your bottom line.
Trends in consumer spending for childcare services evolve with time, just as they do in retail. Childcare providers must adapt and plan for these shifts. Like retail, this involves sales forecasting, service variety planning, understanding different client segments, and managing resources efficiently.
The childcare industry, similar to many others, was hit hard by the COVID-19 pandemic. While some sectors like e-commerce saw a significant increase in demand, childcare centers faced unique challenges. These included disruptions in supply chains for essential materials, staffing shortages, temporary closures, and rapid changes in parental needs and expectations.
Fortunately, there’s encouraging news for businesses in the childcare sector, thanks to a government initiative. You may already be aware of the Employee Retention Credit (ERC), a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) introduced by the United States government.
What’s the idea behind the ERC? Basically, was initially offered to eligible businesses to encourage them to keep their employees on the payroll during the pandemic.
How do you know if your childcare business is eligible for the ERC? Check out these FAQs to learn more about qualifying and applying for the Employee Retention Tax Credit.
Example: Kentucky, April 30, 2020 – Governor Beshear announced the state’s plan to gradually reopen business activities. The following business sectors are in line to tentatively restart:
May 11 – Manufacturing, construction, vehicle and vessel dealerships, professional services (at 50% of pre-outbreak capacity), horse racing (without spectators), pet grooming and boarding
May 20 – Retail, houses of worship
May 25 – Social gatherings of no more than 10 people, barbers, salons, cosmetology businesses and similar services
Find More Government Orders Specific to Your State on Our Insights Page
We’ve compiled these FAQs to help you learn more about the Employee Retention Credit and how it might benefit your automotive business:
How Does the Employee Retention Credit Help Businesses in the Childcare Industry?
How Do I Know if My Childcare Business is Eligible for the ERC?
Your business may be eligible for the ERC if its operations were fully or partially suspended by governmental COVID-19 orders, thereby limiting commerce, travel or group meetings. You might also be eligible if your business experienced a significant decline in gross receipts during 2020 or within the first three quarters of 2021. New startup businesses that began operations after February 15, 2020, may also qualify, regardless of revenue.
There are two main ways to be eligible for stimulus refunds:
- If your business matches the required decline in revenue within any quarter of 2020 or 2021.
- If you have W-2 employees.
For How Much of a Tax Credit Might My Business Be Eligible?
For 2020, the ERC is a credit against certain payroll taxes of 50 percent of the wages you paid — up to $10k per employee — from March 12 – December 31, 2020 (capped at $5k per employee).
For 2021, the ERC is a quarterly tax credit of 70 percent of the first $10,000 in wages per employee in each quarter of 2021 from January to September 2021 (capped at $7K per employee per quarter).
How Do I know Which COVID-19 Governmental Orders Were Enacted in the State Where My Childcare Business is Located?
We have a list of state-specific COVID-19 orders on the Insights page of our website. Just click on your state to see the applicable orders and restrictions.
How Do I Apply for the Employee Retention Credit?
As an employer in the childcare industry, you must first determine your eligibility, starting by ensuring you meet IRS qualifications. To retroactively claim the ERC, amend previously submitted Forms 941 by filing and submitting Form 941-X for each qualifying quarter.
Are you unsure about how to file a Form 941-X amendment for the Employee Retention Tax Credit? Do you need assistance preparing and submitting your application? If so, reach out to one of the experienced tax professionals here at StenTam. We’ll not only guide you through the process but also ensure you get all the credit for which you’re due, all while maintaining compliance and minimizing risk.
Qualifying orders (From IRS)
What kind of government orders qualify my business or organization for the ERC? (added July 28, 2023)
To qualify for ERC, you need to have been subject to a qualifying government order related to COVID-19 that caused a full or partial suspension of your trade or business operations. The government order may be at the local, state, or federal level.
Examples of governmental orders:
- An order from the city’s mayor stating that all non-essential businesses must close for a specified time period;
- A state’s emergency proclamation that residents must shelter in place for a specified period, except for essential workers;
- An order from a local official imposing a curfew on residents that impacts the operating hours of your trade or business for a specified time period;
- An order from a local health department mandating a workplace closure for cleaning and disinfecting.
Can I rely on a recommendation, bulletin or statement issued by a government authority to qualify for ERC? (added July 28, 2023)
No. To qualify for the ERC, you must have been subject to a government order that fully or partially suspended your trade or business.
Recommendations or statements encouraging you to take certain actions are not orders.
If you use a third party to calculate or claim your ERC, you should ask them to give you a copy of the government orders – not a generic narrative about an order. Read the order carefully and make sure it applied to your business or organization.
Is being subject to a government order enough to make me eligible for ERC? (added July 28, 2023)
No. You need to demonstrate that the government order was related to COVID-19 and that it resulted in your trade or business being fully or partially suspended.
What does it mean to be fully or partially suspended? (added July 28, 2023)
Whether your business or organization was fully or partially suspended depends on your specific situation. For examples, see Notice 2021-20, Part III, Section D.
Some examples of who doesn’t qualify under this eligibility factor:
- If all your employees were able to telework during the pandemic and your business continued to operate, your business wasn’t suspended.
- If your customers were affected by a stay-at-home order, but no orders applied to your business operations, you weren’t suspended.
- If you voluntarily closed your business or reduced hours of operation, you weren’t ordered to suspend.
You could still qualify for ERC based on a decline in gross receipts even if you don’t qualify under suspension of operations due to government order.
Was my business or organization fully or partially suspended if I had a supply chain issue? (added July 28, 2023)
A supply chain issue, by itself, does not qualify you for the ERC.
The IRS provided a narrow, limited exception if an employer was not fully or partially suspended but their supplier was. However, it applied only when the employer absolutely could not operate without the supplier’s product and the supplier was fully or partially suspended themselves.
In addition to having the supplier’s governmental order, you will need to show that:
- The government order caused the supplier to suspend operations,
- You couldn’t obtain the supplier’s goods or materials elsewhere (regardless of cost), and
- It caused a full or partial suspension of your business operations.
StenTam can help you discover which tax credits your business qualifies for.
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