Written by: Amy Hoeye, CPA
This is an outstanding credit (refund!)
There will be many tax professionals that are NOT going to be proactive about this credit. If you think you qualify, ASK your tax professional before you file your 2020 income tax return! Here are the details….
Who qualifies?
First, it’s important to note that this credit was formerly not available to those that received Payroll Protection Program funds. The Consolidated Appropriations Act reversed that disqualification, making this credit now available to businesses that…
- Were fully or partially suspended because of government orders. According the IRS “If a governmental order requires an employer to close it’s workplace for certain purposes”, they qualify for the credit. This includes reduced operating hours. See IRS FAQ 35 and 36
OR
- Experienced a 50% or more decline in gross receipts in 2020 compared to the same quarter in 2019.
How much is the credit?
2020 – 50% of the first $10,000 in wages per employee, for the entire year. This is a $5,000 max credit per employee, for the year.
2021 – 70% of the first $10,000 paid to the employee, per quarter. This is a $7,000 max credit per employee, per quarter.
*Wages paid to owners or relatives of owners do NOT qualify.
How do you get the credit?
- Work with your payroll company closely. You will need to notify your payroll company when you qualify. They, in turn, will claim the credit on your quarterly form 941 and you will receive a refund. For 2021, this is the best and least complicated route to get the refund.
OR
- Because 2020 is retroactive and all the quarterly 941’s have already been filed, the only method to get the refund is to amend the quarterly 941’s for the quarters in which you qualify. The amended 941’s will result in a refund due to your business.
Lastly, do not expect the refund to come quickly. The IRS is behind SIGNIFICANLY in processing all paperwork.
For more information on the Employee Retention Credit consult your tax professional and/or refer to the IRS FAQs.