Don’t Overlook Eligibility for Employee Tax Credit
Are employers considering their eligibility for the Employee Retention Credit?
The credit, which is calculated on Form 941 Employer Quarterly Federal Tax Return, is available to eligible employers from March 12, 2020 through December 31, 2021.
There are two tests to determine eligibility — a quarterly decline in gross receipts test and a government order of shutdown or limited capacity test.
A few examples of eligible employers: (a) All West Virginia bars and restaurants are eligible from March 18, 2020 through March 5, 2021 due to limited capacity rules set by Governor Justice; (b) a daycare center that was closed; (c) a hair salon that was only allowed to operate every other booth; (d) a non-profit that was not allowed to hold organized activities or fundraisers; and (e) an essential business like a law firm that had a decrease in gross receipts in the first quarter 2021 versus the first quarter 2019.
A few things to keep in mind, the ERC will create taxable income in the year of eligibility. So, if you determine you are eligible for 2020, it will be taxable on your 2020 business tax return. If you have already filed business or personal tax returns, they will need amended to reflect this change. This could cause some cash flow issues but it may be significantly worth it in the end. If you received a PPP loan, you are still eligible for the ERC, you just can’t use the same wages for forgiveness in your covered period as your claim for the ERC.
If you have not filed for forgiveness yet on either PPP1 or PPP2, take the ERC into consideration when filing your forgiveness application. Even if you have received PPP forgiveness you still may have eligible wages for the ERC.
If you believe you are ERC eligible, you can file Form 941-X for the applicable quarter and wait for the IRS to process the refund. Currently, the IRS has not been processing these amended returns in a timely manner. We are still waiting on refunds filed in February of this year.
If you can determine your eligibility for the 3rd Quarter 2021 before the 941 return is filed and put the info on the original return, you may see that refund within 60 days. Ask your payroll provider to hold off filing your 3rd quarter Form 941 until you determine eligibility, this will save a delay in receiving funds due to be refunded to your business. Do not dismiss this credit, it can be a big dollar amount and worth the time, energy, and expense to get it right. We have experienced eligible refunds of $10,000 with as little as two employees and up to $500,000 for businesses with more employees.
Jeffrey Yourkovich, CPA, CMM, CGMA is owner of Yourkovich & Associates located at 246 Kruger St., Wheeling.