For starters, the American Rescue Plan Act of 2021 (“ARPA”) extended the ERTC (Employee Retention Tax Credit) through the end of 2021.  Practice owners that haven’t fully recovered to 2019 revenue levels might now be eligible for a tax credit of $7k per non-family employee per quarter, which translates to $28k per employee for 2021.

As we explained in our January 4th blog post available at https://schwartzaccountants.com/2021/01/employee-retention-tax-credit-ertc-updates, to be eligible for the ERTC:

 For 2020 – Maximum annual credit of $5k per eligible employee:

  • To first qualify for the ERTC during 2020, your practice either needed to close due to a government orders or see its revenue fall by 50% for a calendar quarter as compared with the same quarter of the prior year.
  • You continue to qualify until the first day of the quarter following the quarter that collections exceed 80% of the collections for the same period of 2019.
  • For each quarter you are eligible, you can take a payroll tax credit equal to 50% of the first $10k of eligible wages paid per employee for the calendar year.

For 2021 – Maximum annual credit of $28k per eligible employee:

  • This payroll tax credit for 2021 has been extended through 12/31/21.
  • You are now eligible for any quarter in 2021 that your collections fall by more than 20% as compared to the same quarter of 2019 (or you can base eligibility on the preceding quarter as compared with that same period from 2019).
  • For each quarter in 2021 that you are eligible, you can take a payroll tax credit equal to 70% of the first $10k paid per eligible employee per quarter.
  • The credit for the first two quarters of 2021 is taken against your staff’s Social Security taxes, while the credit for the last quarters of 2021 is taken against Medicare taxes. Claim Advance ERTC payments on a Form 7200 (https://www.irs.gov/forms-pubs/about-form-7200)

 We also explained in another January 4th blog post available at: https://schwartzaccountants.com/2021/01/ppp-update/ how to prepare a report on your QuickBooks Online to see if you meet the required reduction in quarterly collections.

 Our plan is to help our clients file for the ERTC starting right after the 5/17/21 extended personal tax filing date. Our fee is $500 per eligible employee per quarter. Additional fees apply if we need to amend your 2020 practice and/or personal tax returns.  If you would like our assistance filing for the ERTC, please email us at practicehelp@schwartzaccountants.com.

Other ERTC Rules – IRS Issues Notice 2021-20: Guidance on the Employee Retention Credit:

In short, the current rules require that employers looking to claim the ERTC must amend the applicable 2020 quarterly payroll tax filings (Form 941) and must also reduce the deduction claimed for their staff salaries on their 2020 practice tax return by the amount of the credit. You can read all 102 pages of this IRS Notice at: https://www.irs.gov/pub/irs-drop/n-21-20.pdf.  Here are some highlights:

  • No deduction allowed for wages included in ERTC Calculation: a similar deduction disallowance applies under section 2301(e) of the CARES Act with regard to the employee retention credit, such that an employer’s deduction for qualified wages, including qualified health plan expenses, is reduced by the amount of the employee retention credit.
  • Family members don’t count: wages paid to related individuals may not be taken into account for determining qualified wages for the employee retention credit.
  • No Credit for Schedule C Income: Self-employed individuals are not eligible for the employee retention credit with respect to their own self-employment earnings. However, a self-employed 21 individual who employs other individuals in the self-employed individual’s 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 the self-employed individual pays to the employees.

Lastly, the IRS Notice (on page 87) details how to file for the ERTC for wages paid in 2020 as follows:

An eligible employer that received a PPP loan and did not claim the employee retention credit may file a Form 941-X for the relevant calendar quarters in which the employer paid qualified wages…[employers] should not use a subsequent Form 941 to claim an employee retention credit for qualified wages paid in the second quarter of 2020.

Please note that calculating the ERTC goes hand in hand with filing for the PPP Loan forgiveness. The rules seem to imply that you can re-figure the allowable payroll costs for the ERTC calculation even if you offset 100% of the PPP Loan with payroll costs for the forgiveness calculation.  See examples starting on page 73 of the IRS notice at: https://www.irs.gov/pub/irs-drop/n-21-20.pdf.

Lastly, unlike other subsidies offered during the past 12 months including the PPP Loans and HHS Provider Relief Funds that provided relatively short windows to apply for those subsidies, practice owners eligible for the ERTC have 3 years to file an amended payroll tax form – 941-X.

Our plan is to help our clients file for the ERTC starting right after the 5/17/21 extended personal tax filing date. Our fee is $500 per eligible employee per quarter. Additional fees apply if we need to amend your 2020 practice and/or personal tax returns.  If you would like our assistance filing for the ERTC, please email us at practicehelp@schwartzaccountants.com.

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