The COVID-19 pandemic created numerous challenges for businesses, leaving many employers tired and burned out. Luckily, the federal government has responded to the pleas of business owners and come up with a solution to provide businesses with much-needed aid to stay afloat during these unprecedented times. The Employee Retention Credit (ERC) was introduced by the Coronavirus Aid, Relief, and Economic Security Act (CARES) to reward employers for keeping their employees on the payroll.
What is the Taxpayer Certainty and Disaster Tax Relief Act of 2020?
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, also known as the Relief Act, was signed into law in late December 2020. Relief Act extended the ERC through June 30, 2021, allowing more businesses than ever to reap the benefits. The expansion of ERC gives businesses the ability to apply retroactively as well as ease up several of the requirements.
Everything you need to know about the Relief Act:
Due to the new changes, eligible businesses can now claim a completely refundable tax credit against the employer share. Eligible employers can claim up to 70% of the wages paid to qualified employees after December 31, 2020, extending through June 30, 2021. The highest ERC amount is $7,000 per worker per calendar quarter.
The Relief Act made it possible for several businesses that did not previously qualify due to restrictions against filing for both Paycheck Protection Program loans and ERC to qualify for the credit. Previously, employers were allowed to file for one or the other. The Relief Act made it so employers could use qualified wages not applied to obtain PPP loan forgiveness to file for the ERC. As of right now, businesses can apply retroactively all the way back to March 12, 2020.
ERC is often overlooked by employers because the program can be very complex and confusing. Your business might be eligible if you meet at least one of two requirements:
- Experienced a full or partial suspension of business operations due to a government order that caused a disruption in commerce, meetings, or travel
- Example: If your business had to operate at half capacity due to social distancing guidelines or if you had to make in-person meetings virtual.
- Experienced a significant decline (20% or more) in gross receipts, compared to certain available baseline quarters, whichever you elect
In addition, the Relief Act made several changes employers should be aware of:
- Amended decline in gross receipts to be defined as a quarter where gross receipts are less than 80% of the same quarter in 2019
- Added an alternative quarter election rule giving employers the ability to look at prior calendar quarter and compare to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts
- Allowed recovery startup businesses that did not exist during all or a portion of 2019 to claim the credit for the respective quarter in 2020
How much can my business now file for thanks to the Relief Act?
Employers can now claim up to $26,000 per W2 employee thanks to the Relief Act’s expansion of the program which could make a significant impact on your business’s bottom line. Let me show you the math for how we came up with that number:
- During the 2020 calendar year, eligible employers could be entitled to 50% of what they paid their employees, capped at $5,000 per employee.
- In 2021, thanks to the Relief Act, they could be entitled to 70% of what they paid their employees, capped at $7,000 per employee for Q1-Q3. That adds up to $21,000 for the 2021 year!
Unlike the Paycheck Protection Program which dictated how you should spend the funds in order to apply for forgiveness, the ERC is a refundable tax credit, which means the money can be used as your business sees fit. The possibilities are endless and the Relief Act’s expansion of the program made it more accessible and valuable to businesses than ever before!
How Stenson Tamaddon can help you maximize your tax credits:
Navigating tax credit programs can be complicated and often brings up more questions than answers. At Stenson Tamaddon, our specialists have extensive knowledge of finance and work to help businesses of all sizes. We are here to make the filing process as easy as possible without disrupting your day to day-to-day life. Stenson Tamaddon uses proprietary technology which gives you the peace of mind of knowing that your important documents will be filed within a timely manner and with compliance in mind. We know your time is important, so let us take care of the complicated stuff and proactively guide you through the filing process in a transparent way. Reach out to one of our specialists today to get started and get the break you finally deserve.