Employee Retention Credit Optimizing Payroll Tax Relief during the COVID-19 Pandemic

by | Dec 29, 2021

Revised December 29, 2021

Employers experiencing economic hardship due to COVID-19 may be eligible for payroll relief.

The employee retention credit (ERC) for eligible employers can be claimed for up to $5,000 per employee in 2020 and up to $21,000 per employee in 2021.

One of these two qualifying events determine eligibility:

  • A trade or business is fully or partially suspended due to governmental orders limiting commerce, travel or group meetings due to COVID-19-, or
  • A trade or business experiences a significant decline in gross receipts for any calendar quarter when compared to 2019 (50% for 2020 and 20% for 2021).

With the passage of the American Rescue Plan Act of 2021, the ERC was expanded to include relief for large employers who are severely financially distressed and for startup businesses who began carrying on a trade or business after February 15, 2020.

Additionally, recent guidance has provided greater detail into what constitutes “partially suspended” operations, opening the door for more businesses to qualify. We strongly encourage you to take a second look at your business’ eligibility.

There are limitations on eligible wages and healthcare expenses depending on whether the business received PPP forgiveness, claimed other credits on wages, or had a certain fulltime employee count.

The Infrastructure Investment and Jobs Act signed by President Biden on November 15, 2021 terminated the ERC credit for the fourth quarter of 2021 unless the business is considered a Recovery Startup Business.

The requirements continue to change and we expect additional guidance, but we encourage businesses to consider this credit now.

How we can help

Our team at KHA provides a customized advisory approach. We can help you:

  • Determine your eligibility for the ERC
  • Identify, document and calculate qualified wages and qualified health plan expenses
  • Calculate the quarterly ERC amount
  • Claim and report the credit

We will bill our hourly rate for an initial consultation. For a full engagement, a retainer ranging between $7,000 and $9,000 will be obtained. The total fee will vary depending on the complexity of the calculation.

Possibility of amended income tax returns

As of this date, most 2020 income tax returns have been filed. If you claim a credit for 2020, you will be required to amend your business return and possibly your personal tax return.

If you claim a credit for 2021, we still have time to calculate and claim the credit and make the appropriate changes to your business return and possibly your personal tax return without any amendments. If you have already filed your 2021 tax return before you claim the 2021 credit, you will be required to amend you returns. Act fast to minimize the compliance costs of amended returns.

Your trusted advisors

Our team at KHA is committed to keeping you well informed on any tax and accounting issues that affect your business. We have been helping businesses like yours remain in the forefront of any new tax changes or new relief that is critical to managing your business in this challenging and changing environment.

For more information on this relief please visit the IRS website here and here and the Journal of Accountancy News here.

These sources are simply included for informational purposes and are based on guidance available as of March 15, 2021 and updated December 6, 2021. KHA Accountants, PLLC, its partners and others do not provide any assurance as to the accuracy of these items or the information included therein. As such, KHA Accountants, PLLC cannot be held liable for any information derived from referenced sources. Consult your legal and business advisors prior to making financial decisions. This is intended for illustrative and discussion purposes only.

 

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