Employee Retention Credit
DO YOU QUALIFY?
Scenario 1: Shut down by government order
For any quarter in 2020: operations “fully or partially suspended” due to “orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial social, religious, or other purposes, due to COVID-19) qualify
If there is an eligible quarter, the business gets credit on wages paid during the part of the quarter the business was shut down.
For example: assume your business was closed from March 15 through April 15th. You will have an “eligible quarter” for both Q1 and Q2, but for Q1, eligible wages are from March 15 – March 31st, and for Q2, eligible wages are from April 1 – April 15th.
If the business was exempt from government orders, it does not qualify under this scenario.
If you are unsure whether or not you had fully or partially suspended operations due to governmental order, refer to the links below:
https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-determining-what-types-of-governmental-orders-may-be-taken-into-account-for-purposes-of-the-employee-retention-credit-faqs
https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-determining-when-an-employers-trade-or-business-operations-are-considered-to-be-fully-or-partially-suspended-due-to-a-governmental-order-faqs
OR
Scenario 2: Experiencing a large drop in year-over-year gross receipts
For any quarter in 2020: gross receipts from the trade or business of the employer must be less than 50% of what they were for the same quarter in 2019.
If this requirement is met, every quarter is an “eligible quarter” until the END of the quarter in which the business’s receipts have returned to at least 80% of what they were for the same quarter in 2019.
For example: if receipts in Q1, Q2, Q3 and Q4 of 2019 were $100,000, $120,000, $100,000 and $150,000, and for the same quarters in 2020 receipts were $40,000, $70,000, $85,000 and $125,000, the “eligible quarters” for 2020 are Q1 (the first quarter in which receipts are less than 50% of 2019), Q2 (still less than 80% of 2019) and Q3 (the end of the first quarter in which receipts have returned to at least 80% of the same quarter of 2019).
THE CREDIT:
2020
If a business has under 100 employees (average monthly FTE’s {Full Time Equivalent} for 2019), all employee wages are eligible.
If a business has over 100 employees, only wages paid to non-working employees are eligible.
The credit is equal to 50% of wages paid during the entire year, up to $10,000 of wages per employee ($5,000 credit per employee).
Wages paid for these purposes include employer paid health benefits.
2021
The gross receipts test is satisfied for any quarter of the first half of 2021 in which gross receipts is less than 80% of the same quarter in 2019 (if not in business in 2019, then use 2020).
For 2021 only, there is an option to elect to satisfy the gross receipts test by looking at the immediately preceding calendar quarter, and comparing that quarter to the corresponding quarter in 2019.
For example: an employer who could not satisfy the gross receipt test in Q1 of 2021 could nonetheless have an eligible quarter for that stretch of time by electing to compare gross receipts in Q4 of 2020 to Q4 of 2019. If there is a drop of more than 20% quarter-over-quarter, Q1 of 2021 will be an eligible quarter.
If a business has under 500 employees, all employee wages are eligible.
If a business has over 500 employees, only wages paid to non-working employees are eligible.
The credit is equal to 70% of wages paid during the quarter, up to $10,000 of wages per employee ($7000 credit per employee).
Wages paid for these purposes include employer paid health benefits.
NOTE: You may not count wages paid for by the PPP loan. However, if you used the 24 week exception but only got 10 weeks of PPP, only 10 weeks out of the 24 must be excluded. Additionally, wages above $100k per annum paid during the 10 weeks may be included for the credit.
Thoughts or questions? Feel free to comment or email me at or call me direct at 201-525-1222 Ext 212. Contact SRG Advisors, LLC today to have a highly trained and dedicated member of our team review your returns!!!