Resources for Additional Information & Assistance
Employee Retention Tax Credit
Two major laws offered pandemic relief to individuals and businesses in 2020; they were the CARES Act and the Consolidated Appropriations Act of 2021. Relief payments to individuals, federal supplements to unemployment insurance, and PPP loans received the greatest attention. We want to bring another important tax credit to the attention of small employers, the Employee Retention Tax Credit (ERTC). It was included in the CARES Act, and then greatly expanded and liberalized when the Appropriations Act passed in late December 2020.
HOW MUCH IS THE CREDIT?
In 2020, up to $5,000 per employee (or 50% of “qualified wages” plus health benefits). This is a payroll tax credit, not an income tax credit, and is deducted from quarterly payroll taxes (Form 941).
In 2021, up to $7,000 (or 70% of “qualified wages" plus health benefits) each quarter per employee during the first 2 quarters. Maximum credit is $14K/employee.
What’s the definition of “qualified wages?”
IRS-ERTC-Q 48. For an Eligible Employer that averaged 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during any period in the calendar quarter in which the business operations are fully or partially suspended due to a governmental order or any calendar quarter the business is experiencing a significant decline in gross receipts.
NOTE: An employer cannot receive a payroll tax credit on wages which have been submitted on a PPP loan forgiveness application. The federal government doesn’t want you to “double dip.”
For 2020, any sole proprietor, limited Liability company (LLC), nonprofit corporation, S-Corporation or C-Corporation is eligible if:
For 2021, same as 2020, except gross receipts only have to be down by 20%. Colleges, universities and hospitals are now eligible.
Are an employer's operations considered to be partially suspended for purposes of the Employee Retention Credit if the employer is required to reduce its operating hours by a governmental order?
IRS-ERTC-Q 35. (as of June 19, 2020) Yes. An employer that reduces its operating hours due to a governmental order is considered to have partially suspended its operations since the employer's operations have been limited by a governmental order.
Are self-employed individuals eligible for the Employee Retention Credit?
IRS-ERTC-Q23. Self-employed individuals are not eligible for the Employee Retention Credit with respect to their own self-employment earnings. However, a self-employed individual who employs individuals in its trade or business and who otherwise meets the requirements to be an Eligible Employer may be eligible for the Employee Retention Credit with respect to qualified wages paid to the employees.
Are wages paid by an employer to employees who are related individuals considered qualified wages?
IRS-ERTC-Q59. No. Wages paid to related individuals, as defined by section 51(i)(1) of the Internal Revenue Code (the "Code"), are not taken into account for purposes of the Employee Retention Credit. A related individual is any employee who has of any of the following relationships to the employee's employer who is an individual:
ARE WAGES PAID TO CLERGY ELIGIBLE FOR ERTC?
Typically, clergy are paid wages and a housing allowance and thus considered employees with tax withholding reported on a 941. Their wages would be eligible for the ERTC.
DOES THE RENT OF A STORAGE UNIT COUNT AS RENT?
Yes, for your PPP loan forgiveness application. Rent isn’t a consideration with ERTC.
WILL THE GOVERNMENT EXTEND THE 2020 TAX FILING SEASON?
Probably not. New stimulus payments passed in 2021 will likely affect 2021 tax returns.
HOW TO COLLECT YOUR TAX CREDIT
This tax credit is claimed by reducingg payroll tax deposits sent to the IRS with Form 941. You can request the credit retroactively on Form 941-X.
If your credits exceed your payroll tax, you can request a refund on Form 7200.
This doesn’t have an impact on your state of North Carolina taxes, as it’s a payroll tax credit, not income.
What records does an employer need to keep to substantiate the credit?
IRS-ERTC-Q 70: An eligible employer will adequately substantiate eligibility for the employee retention credit if the employer creates and maintains records that include the following information:
• Documentation to show how the employer determined it was an eligible employer that paid qualified wages, including:
o any governmental order to suspend the employer’s business operations;
o any records the employer relied upon to determine whether more than a nominal portion of its operations were suspended due to a governmental order or whether a governmental order had more than a nominal effect on its business operations;
o any records the employer used to determine it had experienced a significant decline in gross receipts;
o any records of which employees received qualified wages and in what amounts.
• Documentation to show how the employer determined the amount of allocable qualified health plan expenses.
• Documentation related to the determination of whether the employer is a member of an aggregated group treated as a single employer for purposes of the employee retention credit and, if so, how the aggregation affects the determination and allocation of the credit.
• Copies of any completed Forms 7200 that the employer submitted to the IRS.
• Copies of the completed federal employment tax returns that the employer submitted to the IRS (or, for employers that use third-party payers to meet their employment tax obligations, records of information provided to the third party payer regarding the employer’s entitlement to the credit claimed on the federal employment tax return).
Thanks for your interest. If we can help you with your quarterly reports, questions or calculations, give us a call at 828-528-2323.
Carol King, CPA, PFS
Carol L. King & Associates
One Buncombe Fund
Small businesses looking for help getting through the winter as the COVID-19 global pandemic continues to hamper sales can apply for grants via the One Buncombe Fund. On Jan. 26, 2021 the Buncombe County Board of Commissioners unanimously approved $150,000 to help reinvigorate the previous success of the campaign that helped provide much-needed relief at the beginning of the global pandemic. In particular, this grant funding is heavily focused on helping businesses retain and rehire employees at living wages.
Buncombe County also has a goal of helping raise an additional $300,000 for the One Buncombe Fund, a goal that would provide a total of $500,000 for local, small businesses via the following funding streams:
Buncombe County will immediately begin its goal of raising the additional $300,000 and will focus on that part of the initiative for about two weeks before beginning the application process. The plan is to start taking applications on Wednesday, Feb. 10, allowing for the fund to grow in community awareness and overall available funding.
Please note: If you are an individual in need of assistance, call the County’s Economic Services at (828) 250-5500. If you’re interested in donating or applying for relief funding, see below:
NC COVID-19 Recovery Act Tax 1Q-2020 Credit
The Division of Employment Security announced June 30, 2020 that under North Carolina’s COVID-19 Recovery Act (S.L. 2020-3), employers will receive a tax credit towards their contribution to the state’s Unemployment Insurance Fund. The credit is equal to the amount of your contribution to the fund for the first quarter of 2020.
You do not need to do anything to receive this credit other than to file your 1Q2020 Tax and Wage Report. You must file your report to receive the credit.
The CARES Act
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) injected more than $2 trillion into the US economy. The 880 page bill will impact all parts of society, offering small business assistance, aid to local governments, healthcare, additional unemployment benefits, retirement fund rule relaxation, and changes to tax law. Here are some highlights of this complex economic stimulus package:
Tax Cuts for business
Tax Cuts for Individuals
What the CARES Act says about RMDs
The CARES Act waives required minimum distributions (RMDs) from certain defined contribution plans and individual retirement accounts (IRAs) for the 2020 tax year. This will not only give your portfolio the potential to grow in value but will also lower your taxable income and related tax liability for the 2020 tax year.
We want to remind you that these opportunities are still available. As always, reach out to us at 828-258-2323 if you would like assistance.
Funds for Small Businesses, non-profits, sole proprietors and self-employed
***There have been some revisions to the PPP program since its inception. Please visit the U.S. Dept. of the Treasury website by clicking here for the most up-to-date information.
For more details about any of these tax cuts or loans, please visit our website at CLKCPA.com or give us a call at 828-258-2323.