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The First Test is depending upon whether COVID-19 impacted a company’s ability to generate revenues comparable to pre-COVID levels.
This test looks to compare quarterly periods in 2020 and 2021 to the same quarterly period in 2019. The relevant percentage threshold is 50% in 2020 and 20% in 2021.
For example, if an employer had $49,000 of gross receipts in Q2 2020 compared to $100,000 of gross receipts in Q2 2019, this 51% decline would qualify the employer under the SDGR.
Similarly, an employer with $79,000 of gross receipts in Q1 2021 compared to $100,000 gross receipts in Q1 2019, would also meet the SDGR test for Q1 2021.
Note that in nearly all cases, if a business qualifies under this test for a quarter, they will qualify automatically for the following quarter, provided at least 6 months of eligibility. The look-forward and look-back tests can be quite complicated and we work with our clients closely to help evaluate eligibility.
Even if a company doesn’t meet the SDGR, they can still qualify if they meet the full or partial suspension of operations test, or FPSO.
A lesser-known partial suspension can occur when a business is affected due to supplier related issues. For example, a business that cannot obtain materials or supplies from vendors that were shut down by COVID-19, can also translate into the first business being treated as partially suspended.
Finally, there are complex rules that look at businesses with multiple locations, segments, or divisions and can cause the entire business to be treated as partially suspended, even if only due to one of locations, segments, or divisions.
Our Tax Consultants have the experience with all of these cases and has helped hundreds of Clients through the complicated tax code to maximize their ERC – typically 40% more than most CPAs, bookkeepers and payroll providers.
Eligible employers are small businesses in the US that carry on a trade or business during the calendar year for 2020 and / or 2021 and have fewer than 500 W-2 employees.
Note: You can have more than 500 W-2 + 1099 employees and still qualify.
You just cannot have more than 500 W-2 employees.
Qualified wages are compensation provided to employees during an eligible period after March 12, 2020, inclusive of health plan expenses.
Your ERC is taxable in the year it’s received, subject to your business having taxable income. The slightly wonky answer is: ERC is a reduction of wage expense in the relevant year. If, for example, you deducted $15,000 in wages and you received $5,000 in ERC, you would have $10,000 in deductible wages. Reduction of your Expenses will increase your income and you will be taxed on that Income, assuming your profitable.
The challenge for CPAs is that the ERC credit is based on your payroll returns and not through your business income tax returns, which is what most CPA’s handle.
The vast majority of the time, CPAs are not very well versed in the +150 pages of the ERC tax code, which means you may get less than you should. In addition, payroll providers like ADP are definitely not tax experts. Choosing them to do your ERC is like choosing a dentist to fix your foot.
In 2020, we saw a gap in the market that existed between income tax CPAs and payroll providers, where neither were well equipped to handle ERC work. Because most CPAs handling income tax are not well versed in payroll taxes and are usually already overextended with income tax preparation, they simply haven’t had the time and resources to develop the sub-specialty in Employee Retention Credits.
Payroll providers (ADP, Paychex, QuickBooks, Gusto, etc.) will submit an ERC claim for you, but will not provide any assistance in determining eligibility and qualified wages. In most cases, they are requiring employers to sign waivers of liability so that the payroll provider cannot be held liable for errors, omissions, or overstatement of ERC claims. Choosing this option may create an immense amount of risk of penalties and other punitive actions from the IRS.
In March of 2021, the IRS finally came out with more than 100 pages of detailed guidance on the application of both ERC Version 1 in 2020 and ERC Version 2. Since it has been released, our team of experts have read this over and over again, along with the bills that contain the original law.
The IRS guidance is extremely detailed, very thorough, and immensely complex. In addition to the IRS guidance that came out in March, yet another stimulus bill, the American Rescue Plan Act (ARPA) was released the same month that extended the ERC further into 2021.
Internally, we refer to this as ERC Version 3. ERC Version 3 largely employs the same rules as ERC Version 2. However, it also includes a variation of the ERC called the Recovery Startup Credit (RSC). The RSC can be claimed by any new business started after February 15, 2020, regardless of whether COVID-19 affected the operation or financial results of the “startup business.
The RSC is capped at $50K per quarter (using the same 70% x $10K to reach it), and is only available for certain quarters of 2021.
Is your head spinning yet? Don’t worry, that’s why we’re here – to get you the maximum amount you are due from the Employee Retention Credit program. Just contact us and get started today!
Yes. We do a lot of “second look” work where Clients have us review their original ERC submission and if we find more credit than originally claimed, we can re-amend your Form(s) 941-X to get you any additional amounts.
Even if you’ve gotten your ERC check already and cashed it, there is still an opportunity to re-amend and re-file your claim to get the max credit you deserve.
Currently, the IRS is not providing any estimates related to the timing of Employee Retention Credit receipt. However, they have indicated that there are over 1.8 million paper payroll tax returns in the queue with the IRS. We estimate you will be waiting 8-12 months from the filing date of your claim.
In order to remove the uncertainty to our qualified clients on the timing of receipt of their Funds, we offer an Option that enables the receipt of funds in as little as two weeks - following the submission of our package to the IRS.
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