Don’t Overlook the Employee Retention Tax Credit
Under the Consolidated Appropriations Act (CAA), signed into law at the end of 2020, the Employee Retention Tax Credit (ERC) was extended through December 31, 2021. The ERC is a refundable tax credit against certain employment taxes equal to 70% of the qualified wages with a maximum of $10,000 per employee per quarter with an annual limit of $28,000 per employee for 2021.
To be eligible for the 2021 credit, employers must have 500 or fewer employees and must have been in business during the calendar year 2020 and had operations fully or partially suspended due to a COVID-19-related governmental shutdown order or experienced a decline in gross receipts of greater than 20% in any quarter of 2021 verses 2019.
Many companies and organizations are making the mistake of focusing on the greater than 20% of gross receipts and not paying enough attention to the full or partial shutdown clause to determine eligibility. This is an either or test making many businesses who experienced a full or partial shutdown due to government restrictions eligible for this credit.
Eligible employers can access the ERC for the 1st and 2nd quarters of 2021 before filing their employment tax returns by reducing employment tax deposits. Employers should check to see if they had a reduction of more than 20% in gross receipts from a quarter in 2021 to a quarter in 2019 or if they experienced a full or partial suspension of operations due to COVID-19.
Although some capacity restrictions have been eased, many companies and organizations are still not operating at full capacity. We can help you determine whether your business or organization qualifies for the ERC and, if so, how much the credit may reduce your tax bill. Don't leave money on the table.
For more information, contact your Whittlesey advisor.
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