The Employee Retention Tax Credit (ERC) was recently clarified and extended by Sections 206 & 207 of the Consolidated Appropriations Act (CAA). Whereas Section 207 extended provisions for the ERC into the first two quarters of 2021, Section 206 amended who can claim the ERC in 2020, retroactive to its March 13, 2020 start date. But isn’t 2020 behind us by now? Not quite—and that’s what makes the clauses within Section 206 equal parts confusing yet enticing for struggling business owners.
Section 206 opened the floodgates of the ERC to PPP recipients, a provision that did not exist when the ERC was first established. A new and larger group of businesses previously prohibited from the credit are now able to claim it for wages paid between March 12 and December 31, 2020.
It’s also important to note that Section 206 re-defined what wages qualify. Now, qualified health plan expenses paid by the employer (even if paid on behalf of furloughed employees) do qualify toward the ERC. PPP recipients may use wages that were not covered by forgiven loan monies toward the ERC.
Section 206 has introduced new realms of possibility for claiming the ERC. With new eligible recipients (PPP loan recipients) and updated qualifying wages (health care expenses paid by the employer), businesses are looking to go back and reclaim their refunds owed from previous payroll quarters in 2020.
Well, if you received a PPP loan but did not receive forgiveness, you’re in luck. All wages for those who have been denied forgiveness can now roll over those wages on the employer’s fourth-quarter payroll tax return, Form 941, to receive the ERC.
If your application for forgiveness was accepted, things get a little (a lot) trickier because Section 206 of the CAA does not necessarily account for this circumstance and the IRS has not yet released any guidance regarding it.
What we predict the solution might be: amended payroll tax returns. Under the new PPP provisions that require only 60% of the funds to be used towards payroll (as opposed to the original 75%), businesses can go back and amend their payroll taxes for the 2nd and 3rd quarters — using more of the PPP loan to cover overhead and leaving more payroll dollars to be covered by ERC credits. Additionally, businesses would want to consider the new wages that qualify under ERC while completing a Form 941X.
Does your business qualify for the Employee Retention Tax Credit? DSJCPA has provided some helpful links and a guide to ERC eligibility:
Questions about the ERC? DSJCPA has all the answers. Our Coronavirus Response Team (CRT) is fully equipped to help you and your business overcome these struggles, together. Meet the team by visiting our website and give us a call at 516-541-6549.
Associate, Creative Solutions
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