New tax laws make claiming the Employee Retention Tax Credit (ERTC) easier and more accessible for small businesses.

The Consolidated Appropriations Act of 2021 passed December 27, 2020, allows employers that received PPP1/PPP2 loans through the SBA to also claim the ERTC. These were previously mutually exclusive relief options. The credit is a refundable payroll tax credit, meaning you don’t need to have a tax liability to claim a refund. Your payroll processor may not have told you about this credit, because payroll companies do not have access to information they would need to prepare the calculations.

Who can benefit?

Employers carrying on a trade or business, regardless of size, can claim the tax credit. Special guidelines for “large employers” restrict the wage base for the credit. Tax-exempt organizations are also eligible.

Affiliation rules for ERTC are similar to PPP1/PPP2. Affiliated companies/organizations with more than 50% common control are treated as a single employer for determining if:

  1. There has been a full or partial business closure closure;
  2. If there has been a significant reduction in gross receipts; or
  3. “Large employer” status based on number of employees.
Guidelines for 2020 Guidelines for 2021
For Wages During Dates March 13, 2020 – December 31, 2020 January 1, 2021 – December 31, 2021
Eligibility
  • Experienced a full or partial shutdown, or
  • Experienced a significant decline in gross receipts, defined as >50% in comparable quarter in 2019
  • Experienced a full or partial shutdown, or
  • Experienced a significant decline in gross receipts, defined as >20% in comparable quarter in comparable quarter in 2019 (or 2020 in certain circumstances).
Definition of “Large Employer” A large employer is one that had more than 100 full-time employees in 2019 (using ACA definition) A large employer is one that had more than 500 full-time employees in 2019 (using ACA definition)
Amount of Credit 50% credit on $10,000 of wages per year 70% credit on $10,000 of wages per quarter
Maximum Credit $5,000, per employee, per year $7,000, per employee, per quarter

Marcum 2020 Year-End Tax Guide

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William  Kuhlman

William Kuhlman

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