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What are ERCs and How Do I Take Advantage of Them?
Employee Retention Credits (ERCs) are additional federal relief that are different from PPP loans. Many businesses are not taking full advantage of the extra relief available to them, which often amounts to 100s of thousands of dollars.
The credit calculations differ per year:
Maximum credit per employee is $5,000 in 2020
Maximum credit per employee is $28,000 in 2021
A change in legislation both extended these benefits and made them available to PPP loan holders. The second stimulus bill (enacted December 27, 2020), and the American Rescue Plan Act of 2021 (ARPA) (enacted March 11, 2021), included significant enhancements to the Employee Retention Credit (ERC).
extended the ERC for employers to January 1, 2021 through December 31, 2021
significantly increased the maximum credit per employee
qualifies businesses that obtain PPP loans to be eligible for the employee retention credit in 2021 and retroactively in 2020.
Private-sector businesses and tax-exempt organizations are eligible if they operate a trade or business during the 2020 or 2021 calendar years, and experience either:
the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
a significant decline in gross receipts (For 2020, a drop greater than 50% from the same quarter in 2019. For 2021, the drop must be greater than 20% from the same quarter in 2019).
This is real money from the federal government that is available to any business with less than 500 employees affected by the pandemic. The ERC is not an income tax credit; instead, it is a payroll tax credit and is ultimately reflected on Form 941.
For 2020, the ERC is a refundable credit on amended 941s via submission of form 941-X. For 2021, the ERC is a refundable credit on original or amended 941s. Advance credit claim is available on Form 7200 for any quarters in which a Form 941 has not been submitted.
DEADLINE: Taxpayers may continue to file Forms 7200 by facsimile until January 31, 2022, and their applicable employment tax returns by the required due date.
If you are interested in discussing the ERC or your eligibility, estimating of the credits you may be eligible for, or having a preliminary assessment, you can contact Greg Rawlings. Greg practices independently and through the Trust Services Framework Advisory. He has earned a master’s degree in business taxation from University of Southern California.
California Board of Accountancy license: 39219
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