Employee Retention Credit Extended
As you prepare your third quarter payroll tax filings and look towards year-end, we wanted to remind you that the Employee Retention Credit (ERC) has been extended through January 1, 2022. This means that an eligible employer can claim ERC for the 3rd and 4th quarters of 2021.
The ERC is a refundable tax credit equal to 70% (up from 50% in 2020) of the qualified wages paid by an eligible employer. An eligible employer is a business whose gross receipts in one quarter declined more than 20% (down from 50% in 2020) in 2021 as compared to the same quarter in 2019.
Eligible employers can claim a credit against up to $10,000 of qualified wages (including certain health care costs) paid per employee. The credit is then calculated at 70% (up from 50% in 2020) of the qualified wages. Wages paid to owners and related individuals, such as a child, brother, sister, mother, father, etc., are not considered qualified wages for ERC purposes.
Example:
Eligible employers who do not qualify for ERC under the more than 20% decline in gross receipts as compared to the same quarter in 2019 could still be eligible based on the Alternative Quarter Election. The Alternative Quarter Election allows the employer to look at the decline in gross receipts in the previous quarter for eligibility. If in the prior quarter an employer qualified for ERC as a result of meeting the 20% sales decline criteria, they would automatically qualify in the current quarter, even if they do not meet the sales decline parameters in the current quarter.
The Employee Retention Credit can be claimed on the original filing of the quarterly payroll tax return, Form 941, or by amending the quarterly payroll tax filing through Form 941-X for previously filed quarterly returns.
WM Wisdom
Eligible employers can claim ERC for the 3rd and 4th quarters of 2021.
Eligible employers compare the decline in gross receipts for 2021 to the same quarter in 2019 rather than 2020. This most likely makes it easier to qualify for ERC as 2020 gross receipts are likely less than 2019 gross receipts.
Eligible employers can qualify for ERC using the gross receipts decline in the previous quarter under the Alternative Quarter Election. This means employers could qualify for ERC in quarters where they do not have gross receipt declines.
Questions?
Should you have questions about this topic, or any other topics related to your personal or business situation, please contact us at any time. We are available to speak with you by phone at 215-675-8364 or contact us.
DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources, and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
