Employee Retention Credits The Tax Implications

Hi and welcome back to the tax implications podcast.

I’m Sam Hicks, I’m a CPA and tax advisor and

This is your short form podcast covering the items that affect your bottom line

Thank you for tuning in. Today I’ll be discussing employee retention credits

I thought you might be interested in the modification and extension of the employee retention tax credit (ERTC) by the American Rescue Plan Act (ARPA), signed by President Biden on March 11, 2021. We would be happy to assist you in analyzing whether claiming the modified and extended ERTC might benefit your business. Background. Congress originally enacted the ERTC in the Coronavirus Aid, Relief and Economic Security (CARES) Act in March of 2020 to encourage employers to hire and retain employees during the pandemic. At that time, the ERTC applied to wages paid after March 12, 2020 and before January 1, 2021. However, Congress later modified and extended the ERTC to apply to wages paid before July 1, 2021.

Extension. The ARPA extended and modified the ERTC to apply to wages paid after June 30, 2021 and before Jan. 1, 2022. Thus, an eligible employer can claim the refundable ERTC against ''applicable employment taxes'' (as defined below) equal to 70% of the qualified wages it pays to employees in the third and fourth quarters of 2021. Except as discussed below, qualified wages are generally limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERTC amount available is generally $7,000 per employee per calendar quarter or $28,000 per employee in 2021. For purposes of the ERTC, a qualified employer is eligible for the ERTC if it experiences a significant decline in gross receipts or a full or partial suspension of business due to a governmental order. Employers with up to 500 full-time employees (i.e., small employers) can claim the credit without regard to whether the employees for whom the credit is claimed actually perform services. But, except as discussed below, employers with more than 500 full-time employees (i.e, a large employer) can only claim the ERTC with respect to employees that do not perform services. Employers who got a Payroll Protection Program (PPP) loan in 2020 can still claim the ERTC. But, the same wages cannot be used both for seeking forgiveness of the loan or satisfy conditions of other COVID relief programs (such as the restaurant revitalization grants enacted as part of the ARPA) in calculating the ERTC.

Modifications. Beginning in the third quarter of 2021, the following modifications apply will apply to the ERTC:

The statute of limitations for assessments relating to the ERTC will not expire until five years after the date that the original return claiming the credit is filed or treated as filed. For example, if the Form 941 for the fourth quarter of 2021 claiming the ERTC is treated as filed on April 15, 2022, the return could be audited with respect to the ERTC as late as April 14, 2027.

You should consult with experienced tax and legal professionals before making any decisions for your business.

Thank you for listening.

If you have any questions that you’d like discussed on a future episode please contact me at Sam@taximplicationspodcast.com.