The American Rescue Plan extends the availability of the Employee Retention Credit for small businesses and allows businesses to offset their current payroll tax liabilities by up to $7,000 per employee per quarter. This credit is available to small businesses who have seen their revenues decline, or even been temporarily shuttered, due to COVID.

For FY2020

For 2020, the ERC is a tax credit against certain payroll taxes, including an employer’s share of social security taxes for wages paid between March 12, 2020 and December 31, 2020.  The tax credit is 50% of the wages paid up to $10,000 per employee, capped at $5,000 per employee.  If the amount of the tax credit for an employer is more than the amount of the employer’s share of social security tax owed, the excess is refunded – paid – directly to the employer. 

If your business is eligible for the ERC for 2020 and you have not yet claimed the credit, you can file amended payroll tax forms to claim the credit and receive your tax refund.

Businesses that took out PPP loans in 2020 can still go back and claim the ERC, but they cannot use the same wages to apply for forgiveness of PPP loans and to count toward the ERC.  If your business had payroll costs that were more than the amount covered by your PPP loan, you may be able to claim tax credits for those additional payroll costs.

For FY2021

The ERC is available for 2021.  The amount of the maximum tax credit has been increased to $7,000 per employee per quarter, and the level of qualifying business disruption has been reduced so that a 20% decline in gross receipts during a single quarter will make a business eligible.

Deadline to apply for ERCs: 
FY2020: April 15th, 2024
FY2021: April 15th, 2025

The IRS warns that employers should be wary of third parties advising them to claim the employee retention credit when they may not qualify. Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit. These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund. Businesses should be cautious of schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.

For more information, please reach out to your accounting professional or Beth Renga, Director of Consulting Services at beth.renga@hfco.com

Source: https://home.treasury.gov/

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