The COVID-19 pandemic has adversely affected thousands of businesses throughout the nation during the past 18 months. In response to a concern that employment levels would plummet as a result of such a historic interruption of normal business activities, the Federal Government created the Employee Retention Tax Credit (ERTC) as a stop-gap measure to cushion the blow that companies were feeling from the onslaught of the COVID virus.
Let’s look at the ERTC and some recent updates that the IRS has provided.
What is the Employee Retention Tax Credit (ERTC)?
The ERTC is a refundable credit that qualified businesses can apply to certain wages and health insurance costs paid to employees. This legislation was designed to motivate companies to keep their employees on the payroll despite the harsh economic climate that was created by the spread of COVID-19 throughout the United States.
Recent IRS Announcement on the ERTC
In early August, 2021, the IRS offered further guidance on the ERTC, such as information for employers who paid qualified wages after June 30, 202,1 but before January 1st, 2022.
The announcement under Notice 2021-49 further elaborates on the information that was released about the ERTC in Notice 2021-20 and 2021-3. The newest information addresses revisions made by the American Rescue Plan Act (ARPA) to the Employee Retention Credit that would be applicable to filings for 3rd and 4th quarters of 2021.
Some of the main changes include:
- Allowing eligible employers to receive the credit for wages paid from the end of June, 2021 to January, 2022.
- Enlarging the definition of “eligible employer” to now include businesses deemed as “recovery startups.”
- Revising what are considered qualified wages for businesses severely impacted by the pandemic.
Notice 2021-49 also addresses questions that the IRS has received about the ERTC for 2020 and 2021.
- Clarifying the definition of a full time employee and how it applies to full time equivalent workers.
- How tips are treated with regard to qualified wages in light of the 45B credit.
- Whether wages paid to the majority owners or spouses of a company can be considered qualified wages.
Which Businesses are Eligible for the ERTC?
While there are no size limitations with regard to a business participating in the ERTC, the size of an organization will have an impact on how it is treated under the legislation.
Employers with 100 or Fewer Full Time Employees
All wages paid are eligible for the tax credit, regardless of whether the business stays open or was forced to close due to a state mandated shutdown order.
Companies with 100 or More Full Time Workers
Any wages paid to employees qualify for treatment under the ERTC, except those for work done providing services due to COVID-19 related conditions.
Can My Business Utilize the Employee Retention Credit?
The ERTC is an extremely complex piece of legislation and it is often difficult to understand if a business is qualified to take advantage of the credit, as well as what criteria is used to determine that.
The IRS has stated the latest an eligible business can claim the ERTC is on their quarterly 941 Forms that are due on July 31st, October 31st and December 31st.
SOGID™ Financial Management Can Help
The highly knowledgeable and experienced team at SOGID™ Management Consultants has worked closely with our clients during the onset of COVID-19 to help them determine how the Employee Retention Tax Credit can help them during this unprecedented time in modern history.
If you would like to learn more about this topic or discuss our wide variety of other financial services, contact us today.