Have you evaluated whether your business qualifies for the Employee Retention Credit? The Federal program has been modified twice in the past six months, so if you have not kept up with the changes you may find that you qualify for payroll tax credits based on continuing wage payments.
The threshold for qualifying in 2021 is a decrease in gross receipts (as compared to the same quarter in 2019) of 20%+. This is a lower bar to clear than the 50%+ decrease needed to meet eligibility for the program under the 2020 rules. Gross receipts are defined in the same way as for your Federal income tax filing – if cash basis, then cash receipts, if accrual basis, then billings.
Under the 2021 rules, there is also an alternate way to meet eligibility: you can elect to reference the results of the prior quarter. For example, if your 4th quarter 2020 gross receipts were down 20%+ as compared to 4th quarter 2019, you could elect to use those statistics to justify qualification in the 1st quarter of 2021. Similarly, if 1Q21 was down 20%+ compared to 1Q19, you could elect to reference those results to qualify claiming the ERC in 2Q21.
The benefits of the program in 2021 have also been amped up. A credit can be claimed for 70% of up to $10,000 in Qualified Wages per employee, per quarter. That translates to a possible $7,000 payroll tax credit per employee each quarter. The 2020 program maxed out at a possible $5,000 payroll tax credit per employee for the whole year.
Businesses that started up on or after February 15, 2020, are being targeted in the American Rescue Plan with the Recovery Startup Business Credit, which is an offshoot of the Employee Retention Credit and offers some of the same benefits.
Like any Federal program, there are important caveats and exclusions. You may want to use this grid to pull together your gross receipts by calendar quarter for a more productive conversation about qualifying for and claiming this benefit.
If you have questions about how this guidance may impact you, please get in touch with your BHCB team contact. We continue to be here, working for you, to provide ongoing support and information.