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Employee Retention Credit (ERTC)

ERTC Qualifications

  • Operations fully or partially suspended by a government order, including a supply chain disruption (see below) or
  • 2020 Gross receipts were less than 50% compared to the same quarter in 2019, and/or
  • 2021 Decline in gross receipts of 20% or more during the first three quarters compared to the same quarters in 2019 or 2020

Qualifying Periods For Wages

  • 2020: 03/13/2020-06/30/2020; 07/01/2020-09/30/2020; 10/01/2020-12/31/2020
  • 2021: 01/01/2021-03/31/2021; 04/01/2021-06/30/2021; 07/01/2021-09/30/2021; 10/01/2021-12/31/2021 (Q4 only for businesses started on or after February 15, 2021)

Changes to the Employee Retention Tax Credit (ERTC)

  • Repeals the provision denying the ERTC to employers receiving a PPP loan. Instead, mechanisms would be created to prevent the same wages from being used for both PPP loan forgiveness and the ERTC.
  • Extends the ERTC to apply to wages paid in all four quarters of 2021 (instead of January 1, 2021).
  • For 2021, the employee retention credit (ERTC) is a quarterly tax credit against the employer’s share of certain payroll taxes. The tax credit is 70% of the first $10,000 in wages per employee in each quarter of 2021. That means this credit is worth up to $7,000 per quarter and up to $28,000 per year, for each employee.
  • Increases the credit percentage from 50 percent to 70 percent of applicable wages.
  • Increases the per-employee limitation on applicable wages from $10,000 total to $10,000 per calendar quarter. In combination with the increased credit percentage, this would increase the maximum credit per employee from $5,000 to $7,000 per quarter (up to $14,000 for the first two quarters in 2021).

The following language was added to the ERTC provisions that specifically addresses PEOs:

  • Any forms, instructions, regulations, or guidance described in paragraph (2) shall require the worksite client (not the PEO) to be responsible for the accounting of the credit and for any liability for improperly claimed credits and require the professional employer organization or other third-party payor to accurately report such tax credits based on the information provided by the client.
  • Makes the ERTC available if the business experienced a decline of at least 20 percent in gross receipts (instead of a 50 percent decline) as compared to the same calendar quarter in the prior year.
  • Modifies the small employer definition of qualified wages to apply to employers that have 500 or fewer employees (instead of 100 of fewer employees).
  • The worksite employer must attest in writing that they qualify and state which quarters they qualify for. ERC eligibility is determined on a quarterly basis
  • Employers may not take the credit on wages that were covered by their PPP loan. Thus, the employers must certify to the PEO that they have done the analysis and they are not “double dipping”.

Supply Chain Disruption Qualification

•Supply chain disruption is a common qualification for businesses that rely on vendors and suppliers for their business to function properly. This qualification must have resulted from a government suspension order to your supplier that resulted in the supplier not being able to deliver critical goods, but may continue beyond the original suspension order. The specific requirements for this qualification are listed below. These impacts qualify a company regardless of revenue gain or loss.

Please reference the IRS notices pertaining to supply chain disruption qualification:

•Notice 2021-11

•Notice 2021-20

ERC Supply Chain Disruption Qualification

More than Nominal Impact - The supply chain disruption must have resulted in a more than 10% impact on your business. This can be directly from the reduction of sales from the inability to procure the supply item, or from the impact not being able to procure the item had on your business. To calculate the more than 10% impact, evaluate the impact of the supply item on your 2019 gross receipts. For example, if you were not able to procure pallets for shipping of goods, consider how much of your business relied upon pallets in order to operate in 2019. If it was more than 10%, this qualification can apply.

No Replacement Supplier - The business must not have been able to find a replacement supplier for the supply item affected by the government suspension order.

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