by Matthew Cohen, CPA
Does your company have employees? Was your business affected by COVID-19? If not, did you service clients whose businesses were affected by COVID-19? If you answered yes to any of these questions…keep reading.
In March of 2020 the IRS passed the Cares Act. As part of this legislation, the IRS allowed business request a refundable tax credit for a portion of a company’s payroll and payroll taxes. The rules changed through the process but here is how it ended up.
There are two ways to qualify for ERTC.
The first is the Safe Harbor method. To qualify for this method, your company’s revenue must have dropped by minimum amounts as follows.
- For Q2, Q3 and Q4 of 2020 if your company had a 50% or greater drop in revenue it qualifies for ERTC under the safe harbor method.
- For Q1, Q2 and Q3 of 2021, if your company had a 20% drop in revenue for Q1,Q2 and/or Q3 of 2021 it qualifies for ERTC under the safe harbor method.
Affected by COVID
Additionally, you can qualify for ERTC if your business was affected by COIVD. There are specific parameters the company must fit into in order to qualify (i.e. shut down by government proclamation). Assuming your business does not meet the qualifications as an ‘affected” business, you have another option. You can also partially qualify if you serviced clients that by definition were affected by COVID. Assuming one or more clients make up at least 10% of each qualifying quarter’s revenue, you will qualify. In this case you would only be eligible for an allocable share of the credits based on what percentage of total revenue the affected client/s make up.
The maximum amount you can receive per employee is $26,000
- $5,000 for 2020 ($5,000 maximum per quarter and annually)
- $21,000 for 2021 ($7,000 per quarter and 21,000 annually)
If you have 10 employees and fully qualify you would receive $260,000. Further, if you have 50 employees that qualify, you are looking at credits exceeding $1,000,000.
Things to note
- Credits are for wages, payroll taxes and health insurance premiums
- Any of the above-referenced expenses that were covered with PPP loan proceeds are excluded from the credit calculation (if your PPP loan forgiveness form was not filled out to maximize the covered period, this could eliminate one or more eligible quarters)
- 50% or greater owners of the company and their families are ineligible
- It is fairly easy to apply for the credit even if you do not qualify. There are ERTC ‘mills’ that will have you attest to being eligible without doing any due diligence
If you think you may qualify reach out to us firstname.lastname@example.org so we can see if applying for the credit makes sense. This program is only available for a limited time so act soon.