What Should You Know About Employee Retention Credits

Even though almost all COVID relief programs have ended, it's still important to keep an eye on the employee retention credit (ERC), regardless of whether you've already used it, or are thinking about doing it. So, or even just dismissed it because of ambiguous or changing guidance.

Relying on the ERC

The ERC is still available for three years after the initial filing deadline if you meet the requirements and are paid eligible wages during the qualifying periods.

This generous extension gives you more time to determine whether or not you're entitled to a tax credit of up to $7,000 per worker over the first three quarters of 2021, or $5,000 per worker in 2020.

Examine the important factors, including but not limited to those listed below. To safeguard and, if necessary, defend your claim with the IRS, keep a record of your decision points.

• Can you demonstrate a material decrease in gross receipts or a complete or partial suspension of operations?

• Can you identify the official order that caused your operation to be suspended, whether it was complete or partial, and can you provide the records you used to determine whether the order had a significant impact on your business?

• Have you calculated and recorded your average number of full-time employees in 2019 to show that you meet the requirements for a large employer subject to wage limitations?

• Are the wage amounts and the methodology used to determine qualified health plan expenses included in your credit computations?

• Can you demonstrate how belonging to an aggregated group changed your eligibility and how the ERC was distributed?

• Have you examined your wage distribution between PPP loan forgiveness and ERC if you received a Paycheck Protection Program (PPP) loan?

There are still some problems:

• Regarding the IRS safe harbor for qualification under a partial suspension of business operations, there is not much guidance available.

• Refunds and amended forms are processed 9 to 12 months or more after they are submitted.

• To add the credit amount back to the wage expense in the year the credit was generated rather than the year the credit was claimed or received, federal income tax returns must be amended.

• If you are found to be ineligible for the credit, the IRS may audit your refund and possibly disallow it; in that case, you would be required to pay back the refund along with interest and perhaps penalties.

When does employee retention credit time become payable?

Exactly what is the Employee Retention Credit Time? The credit is now extended to include wages paid to employees from March 13, 2020, through December 31, 2022. A percentage of each employee's wages up to a maximum amount per employee per quarter makes up the credit amount. Depending on the number of employees and the total amount of wages paid, different percentages and maximum amounts apply.