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Tax & Assurance Guidance

Do You Qualify for Employee Retention Tax Credit Refunds?

Posted on January 27, 2021 by

Jim Biehl

Jim Biehl

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The Consolidated Appropriations Act, 2021, (CAA) delivered welcome economic stimulus and financial relief to Michigan businesses. For many, the continuation and expansion of the Paycheck Protection Program (PPP) and the Employee Retention Tax Credit (ERC), including expanded ERC eligibility criteria for 2021 and retroactive provisions for 2020, will provide immediate cash benefits. Today we will focus on the ERC.

Retroactive – 2020

Before the new tax act, businesses that received a PPP loan in 2020 could not claim the ERC payroll tax credit. However, the big news is that now PPP loan recipients can claim the credit for eligible wages that were not paid for with PPP forgiven loans. The change is retroactive to March 2020 and means certain businesses should immediately claim refunds. Learn more about the qualification requirements and cash benefits.

Do You Qualify for a Retroactive Benefit?

If you experienced a “qualified quarter” in 2020 based on the below criteria, you may qualify for a retroactive benefit.

  • >50% decrease in gross receipts (calendar quarter 2020 vs. 2019)
    • Subsequent quarters qualified through the quarter you exceed 80%
  • Operations suspended (fully/partially) by government authority

What is the Cash Benefit?

  • 50% of the “qualified wages” paid after March 12, 2020 in a “qualified quarter”
    • The credit is capped at $5,000 per employee for all of 2020
  • The number of 2019 full-time employees (FTEs) determines the “qualified wages”
    • 100 or less FTEs – wages/healthcare costs paid regardless of whether work was performed
    • 100 or more FTEs – limited to wages/healthcare costs paid to NOT work
    • The affiliated group rules need to be applied to compute FTEs.
  • You cannot claim the ERC on wages utilized to claim forgiveness on a PPP loan

Moving Forward – 2021

The new tax act extended the credit through the first two quarters of 2021, expanded the number of businesses that will qualify for the ERC, and increased available dollars.

Do You Qualify for a 2021 Benefit?

If you experience a “qualified quarter” in 2021, based on the below criteria, you may qualify for a benefit.

  • >20% decrease in gross receipts (calendar quarter 2021 vs. 2019)
    • You can elect to look at the immediately preceding quarter to qualify
    • Use 2020 if your business did not exist in 2019
  • Operations suspended (fully/partially) by a government authority

What is the Cash Benefit?

  • 70% of the “qualified wages” paid in a “qualified quarter”
    • The credit is $7,000 per employee PER quarter
  • The number of 2019 FTEs determines the “qualified wages”
    • 500 or less FTEs – wages/healthcare costs paid regardless of whether work was performed
    • 500 or more FTEs – limited to wages/healthcare costs paid to NOT work
    • The affiliated group rules need to be applied to compute FTEs.
  • You cannot claim the ERC on wages utilized to claim forgiveness on a PPP loan

How Do You Claim the Credit?

The IRS recently came out with procedures for claiming the 2020 credit for quarters two, three, and four on the fourth quarter Form 941. However, if the fourth quarter return has already been filed, you will need to amend the filings.

The credit can be claimed in advance in 2021 by filing Form 7200. The advance payment is equal to the amount above the anticipated reduction in your payroll tax deposits. The actual credit would then be reported and reconciled on the quarterly Form 941. Therefore, a portion of the credit should be claimed by reducing your payroll tax deposits and/or claiming the refund on the quarterly Form 941.

Contact Us

These changes create an opportunity for many Michigan businesses. Employers that received a PPP should conduct a review to determine if they qualify, while others now eligible should evaluate operations to determine expected savings. This can open the door to applying for a credit advance if desired. To assess your savings potential, learn about our Stimulus Benefits Check-In service designed to uncover new opportunities. For additional information call us at 248- 208-8860 or click here to contact us. We look forward to speaking with you soon.

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Jim Biehl

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Leading the firm’s manufacturing & distribution group, Jim has built a reputation for providing strategic tax, accounting and operational support to owners.

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