Tax

With the Consolidated Appropriations Act, 2021, millions of small-business owners like you now qualify for the employee retention credit (ERC), thanks to three big changes:

1. You can now obtain the ERC and the Paycheck Protection Program loan, but not on the same wages.
2. This new rule applies retroactively to 2020.
3. The new law adds an enhanced ERC for 2021.

And thanks to the latest new law, the American Rescue Plan Act of 2021 (ARPA), the already enhanced 2021 ERC is extended for an additional six months, through December 31, 2021.

The ERC is a big deal. It can put tens of thousands of dollars directly in your pocket to help offset your cost of paying employees during the COVID-19 pandemic.

Say during the first quarter of this year (2021) your S corporation paid the following wage and health expenses.

For the first quarter of 2021, the credit rate is 70 percent on up to $10,000 of W-2 wages per employee.

Your ERC for the first quarter of 2021 is $28,000, or 70 percent of $40,000. That’s a hefty chunk of change.

If you would like my help with your ERC, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 17, 2021

You likely already know that the employee retention credit (ERC) is a good deal—if you qualify.

Now, thanks to the recently enacted American Rescue Plan Act of 2021 (ARPA), you can qualify for up to $100,000 of ERC in the third and fourth quarters of 2021 if you

• begin the business after February 15, 2020 (you could start today),
• have average annual gross receipts of $1 million or less, and
• do not meet either of the ERC tests—the suspended operations test or the gross receipts test—in place before ARPA was passed.

When you meet the three requirements above, you qualify as a recovery start-up business and, as such, can claim an ERC of up to $50,000 in both the third and fourth quarters of 2021. 

It works like this: your recovery start-up business ERC is equal to 70 percent of the qualified wages paid to each employee (up to $10,000 per employee per quarter), with an overall maximum credit of $50,000 per quarter.

The big deal with the two quarters of 2021 is that your business has to be new, but it does not have to suffer from COVID-19 stresses. In fact, it can’t qualify for the recovery start-up business special deal if it otherwise qualifies under the suspended operations test or the gross receipts test.

If you are thinking of starting a new business this year and would like to discuss the possible benefits of this new law, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 15, 2021

First, say thanks to the Consolidated Appropriations Act, 2021 (CAA), enacted December 27, 2020. It opened the door (retroactively and going forward) for Paycheck Protection Program (PPP) participants to also claim the employee retention credit (ERC).

Reminder. Tax credits are the best. They usually reduce taxes dollar-for-dollar. 

(The ERC is not quite as good as the usual tax credit because you increase taxable income by the amount of the credit. But it’s still good—very good.)

The CARES Act, enacted on March 27, 2020, created the PPP money, but it prohibited you from getting both PPP money and tax credits from the ERC; you had to choose one benefit or the other. Now, thanks to the new December law, you can have both tax-free PPP money and tax credits from the ERC.

And perhaps the best news of all comes from the IRS in its recently released, business-friendly guidance on how the rules work when you want to claim both PPP and ERC benefits.

How the Law Changed

The CAA made four important changes retroactive to 2020:

1. You may now qualify (yes, retroactively) to claim the ERC for 2020 wages even though you had a 2020 PPP loan.
2. You may not claim the ERC on PPP wages used for PPP loan forgiveness.
3. You can elect not to claim the ERC, so as to increase your tax-free PPP monies.
4. If your lender denies your PPP loan forgiveness, you can claim the ERC for the qualified wages even when you made the election not to claim the ERC for those wages.

Congress made the changes retroactive to March 13, 2020, allowing you to now amend your 2020 payroll tax returns to claim the employee tax credits for which you are eligible.

You likely hadn’t thought of amending payroll tax returns, because it’s not often done. But you have the three-year statute of limitations for amending payroll taxes just as you have it for your income tax returns. 

If you would like to discuss how the new law changes the ERC and intertwines with the PPP, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 12, 2021