Don’t Buck the Fed

As the saying goes in the investment community, you “Don’t Buck the Fed”, but rather you follow their lead and take advantage of what they give you. Well, what more important investment do employers have than their own companies? Therefore, my recommendation is that as a business owner you should take advantage of all of the incentives that the Federal Government has laid out for you during the past two years, and one of those incentives is the “Employee Retention Credit” or ERC.

With the implementation of the CARES Act, and specifically, section 2301 of the CARES Act, followed by the enactment of the “Taxpayer Certainty and Disaster Relief Act of 2020” and the “American Rescue Plan Act of 2021” , the Government enacted some very powerful tools that make available significant credits for eligible employers. These credits have changed since originally enacted and are due to expire on December 31, 2021 unless the President decides to end them sooner.  Rumor has it that this could happen with the quarterly payroll ending September 30, 2021.  To demonstrate how valuable the ERC can be, I recently amended three previously filed payroll tax returns for a client in the restaurant industry, and, if all goes as calculated, the total ERC refund will amount to approximately $185,000. [1] I’ll summarize some key takeaways of the ERC in this article.

Space and time don’t allow for a complete explanation of the rules that apply to the ERC and, as such, I’m highlighting a few of the key points.  If you believe your company could qualify and hasn’t yet taken advantage of the credit, now is the time to call your trusted tax advisor at Capaldi Reynolds for further discussions about this credit.

A few of the key takeaways from the ACT:

1. The credit for year 2020 was limited to 50% of the first $10,000 of wages paid to each qualified employee, or up to $5,000 for each qualified employee.
2. The credit for year 2021 is limited to 70% of the first $10,000 of wages paid to each qualified employee per quarter, or up to $7,000 per employee, per quarter for as long as the ACT remains open. Thus, for year 2021, you could quite possibly qualify for a credit of $28,000 on $40,000 in wages paid to each eligible employee. Thus, if your company qualifies for each of the four quarters in year 2021 and you had five eligible employees, each earning $15,000 per quarter, your total credit for year 2021 could be as high as $140,000. Meaning the Federal Government is subsidizing 46% of your 2021 wages paid to those five employees. “Don’t Buck the Fed!”
3. There are a few ways in which you as an employer could qualify for the ERC, and they are as follows, however, the below list is not all inclusive:
   1. For each quarter you are measuring in year 2020, your gross revenue for that respective quarter must have dipped by at least 50% compared to the same quarter in year 2019.
   2. For each quarter you are measuring in year 2021, your gross revenue for that respective quarter must have dipped by at least 20% compared to the same quarter in year 2019. Thus, not only did the potential benefit grow in year 2021, but it also became easier to qualify.
   3. Orders from an appropriate governmental authority that fully or partially suspended business operations.
      • We know that New Jersey’s Governor signed various executive orders in year 2020 and 2021 which did just this.
4. Other key takeaways:
   1. Qualified wages expand outside just the employee’s paycheck.
   2. Controlled business must be aggregated.
   3. Other CARES credits may offset the ERC.
   4. Employer family members will most likely be excluded from the credit.
   5. PPP wages cannot also be counted as ERC wages, but it’s still possible to qualify wages for both the ERC and PPP in the same quarter.
   6. Generally, amended payroll returns, assuming an overpayment of taxes, can be filed within three years after the end of the quarter the original filing took place.

Article Submitted by – Thomas J. Freund, CPA

[1] Of course, the amount of any refund will depend on the specific circumstances for each employer and could be substantially less than was available to this one.