Retroactive Stuff – Going Back to 2020:
Recent legislation (Dec 2020, and March 2021) revised the rules for 2020.
You now qualify if you were at least partially shut down (see definition here.), OR quarterly gross receipts were down 50% compared to the same quarter of 2019, AND you paid any salary or wages, EVEN if you received a PPP loan. If you had over 100 employees in 2019, you can only get the credit against wages paid to employee who were not working.
Recent legislation affecting payroll for all of 2021:
This legislation significantly loosened the rules for qualifying for this 2021 credit.
You qualify if you were at least partially shut down, OR quarterly gross receipts were down ONLY 20% from the same quarter in 2019, EVEN if you received a PPP loan.
Note that this applies to all wages paid in 2021, regardless whether the employee provided services or not for employers of under 100 employees in 2019. For businesses over 500 employees in 2019, the entity can only get the credit against 2021 wages paid to employees who were not working.
Qualifying under the 2021 gross receipts rule:
Generally, you would compare your current quarter with the same quarter of 2019. For example, Q1 2021 (March 31, 2021) gross receipts would need to be at least 20% less than Q1 2019 gross receipts.
However, for Q1 2021 you are also allowed to alternatively compare the gross receipts of Q4 2020 against Q4 2019 for the 20% reduction.
And for Q2 2021 you are also allowed to alternatively compare the gross receipts of Q1 2021 against Q1 2019 for the 20% reduction.
Amount of dollar-for-tax dollar credits:
The total 2020 credit is 50% of qualified wages up to a $5,000 credit per employee.
The total 2021 credit is 50% of qualified wages up to $14,000 per employee.
Summary and Actions To Take:
For 2020, you DID NOT have to have paid wages to employees even though they were not working to get the credit, unless you are an employer of over 100 employees in 2019.
ANY 2020 quarter will qualify for employers of under 100 employees if it includes any ‘shut down period’ (see definition here), OR gross receipts were down 50% in that quarter, and EVEN if you had a PPP loan forgiven.
This means that most small businesses will likely qualify for the credit based on wages paid during the time or times of partial shutdown.
For 2021, a quarter will qualify if you were at least partially shut down during that quarter OR gross receipts were down ONLY 20% or more, as explained in the original blog.
Fully or partially Suspended or Shut Down:
From Kristine A. Tidgren “AG Docket”:
“IRS FAQs provide a fairly detailed analysis of the “fully or partially suspended” requirement. Generally, the informal guidance states, “the operation of a trade or business is partially suspended if an appropriate governmental authority imposes restrictions on the employer’s operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 such that the employer can still continue some, but not all of its typical operations.” The FAQs analyzing partial or full suspensions, as applied to essential and non-essential businesses, may be found here. It is important to note, for example, that under this guidance mere recommendations to close (as opposed to orders) or decreased customer activity do not count as a full or partial suspension. Additionally, if the work can continue in a “comparable” manner through telework, there is no partial suspension.”
Note that PPP loan forgiveness is still a factor for both years, and must be coordinated with this ERC.
Schedule C owner income does not qualify, but the wages paid by the Schedule C owner do qualify.
We can assist you in filing for the credit whether we processed your payroll or not.
Regular rates apply for assisting your business with this credit: that is, to amend a Form 941 filing based on underlying calculations, or to make calculations of any kind, including summarizing quarterly receipts to determine if you qualify.
Please reply to this message for a response to basic questions, or to request assistance with this credit.