Congress has tried in many ways to help employers through the COVID-19 pandemic. The headline news was the Payroll Protection Program, passed as part of the CARES Act last year. But, the Taxpayer Certainty and Disaster Relief Act of 2020, enacted on December 27, 2020, made some changes to the employee retention tax credits previously available under the CARES Act, including extending the Employee Retention Credit (ERC) through June 30, 2021.
With the new changes, employers, including Estate Planning attorneys, may be able to claim a refundable credit against the employer’s share of the Social Security tax. That credit could be up to a maximum of $7,000 per employee per calendar quarter, for a total of $14,000 in 2021. Under current legislation, the credit is only applicable through June 30, 2021. The credit is 70% of qualifying wages up to $10,000 per employee per quarter. The credit is refundable. In other words, even if you don’t owe that much in taxes, you’d still get a refund of that amount.
Employers are eligible if they operated a business between January 1 through June 30, 2021, and experienced either:
- A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).
If your business didn’t exist in 2019, you’d use the corresponding quarter in 2020 for the comparison.
According to the IRS, “for an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.”
Further, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan. In other words, you can count them as long as you’re not double-dipping.
You can obtain the credit before filing your employment tax return by reducing employment tax deposits. Small employers (those under 500 full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing deposits. Larger employers don’t qualify for this advancement.
If you’d like more information, see this announcement from the IRS.
Further, the IRS has extended the deadline for the filing of individual income taxes to May 17, 2021. See this announcement from the IRS.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128