We are advising our accounting client not to apply for PPP loan forgiveness so they can maximize the Employee Retention Credit via a good PPP and ERC strategy for 2020 and 2021.
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EMPLOYEE RETENTION TAX CREDIT DETAILS VIDEO –
This video is intended for education purposes and should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Freedomtax Accounting and Multiservices Inc. is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience. Freedomtax Accounting and Multiservices Inc. or its members cannot be held liable for any use or misuse of this content.
New legislation from the Consolidated Appropriations Act, 2021 creates a chance for some of your clients to take advantage of both Paycheck Protection Program (PPP) loans and the Employee Retention Credit (ERC).
Several changes specific to the ERC can provide an opportunity for additional relief for your clients. The significant changes that affect small businesses include:
Extension of the ERC through June 30, 2021
Increased credit rate from 50% to 70% of qualified wages
Increased the limit on per-employee qualified wages from $10,000 for the year to $10,000 for each quarter
Reduced year-over-year gross receipts decline from 50% to 20% and
Created a safe harbor to allow employers to use prior-quarter gross receipts to determine eligibility
The legislation means that employers who receive PPP loans may still qualify for the ERC retroactive to March 13, 2020.
Previously, clients receiving a PPP loan during the first round of relief couldn’t take advantage of the ERC. However, with the new legislation, a business can take the ERC even if they received PPP funding and loan forgiveness as long as the payroll identified for the ERC was not paid out of PPP funds. As noted above, this change is retroactive to March 13, 2020.
Your clients may not be aware of this planning opportunity. It’s also a chance for you to bring more value to your clients by helping them take full advantage of relief options. And the time to do so is now — before completing your clients’ year-end payroll filings, especially if your clients haven’t applied for PPP debt forgiveness. Your clients can still claim the ERC if they’ve received forgiveness, but planning will be simpler if your clients haven’t applied yet. While waiting for specific IRS guidance needed to implement these provisions, you can begin discussing the opportunity with your clients.
Specifically, the bill allows eligible entities to claim the prior quarter’s credits from 2020 in the quarter in which the bill was signed: the fourth quarter of 2020.
The ERC is a fully refundable payroll tax credit for employers that, for 2020, is equal to 50% of qualified wages employers paid beginning March 13, 2020. Businesses are eligible if:
They were fully or partially suspended due to an order from a governmental authority limiting travel, business and meetings during the quarter of payroll not paid out of PPP funds, or:
The business had a reduction in gross receipts of 50% or more during a calendar quarter compared to the same calendar quarter in 2019.
When the covered period for PPP loans was extended to 24 weeks, many clients’ applications for debt forgiveness qualified for 100% forgiveness on payroll alone without considering the other eligible nonpayroll costs.
However, those other costs now may play a big role in receiving the ERC benefit. In assisting your clients with their forgiveness calculations, analyzing the ratio of payroll and nonpayroll costs is a critical step. If sufficient nonpayroll costs are available, limiting payroll costs to the 60% threshold required for full forgiveness may allow the remaining payroll to be eligible for the ERC-provided relief.
#ppp #erc #ertc #pppforgiveness #employeeretentioncredit
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