Boyne Capital provides more than just capital for its portfolio companies. One example is the access to expertise that can uncover where problems lie, improve operations, and maximize tax benefits in an ever-changing legislative environment.
The Coronavirus pandemic has upended life across our economy. Every business, large or small, has been impacted. The U.S. Federal Government responded with a variety of measures intended to cushion the financial blow for businesses, but, as we have seen with many other emergency measures, the result has been a confusing maze of programs and associated requirements. Navigating this maze and taking advantage of these financial recovery programs requires the services of a knowledgeable consultant. Cherry Bekaert, one of Boyne Capital’s trusted accounting advisory partners, offers valuable insights into Employee Retention Credits (“ERCs”), available to both large and small businesses. As Cherry Bekaert’s Martin Karamon and Cameron Smith point out, ERCs are there for the taking, if you just know how. Read on for more…
The Employee Retention Credit (ERC) for 2020 and 2021: It’s Not Too Late
Courtesy of Martin Karamon, Principal, Tax Credits & Advisory Practice Leader and Cameron Smith, Business Development Director, Transaction Advisory & Private Equity Services
Although quarantine restrictions have eased, many businesses remain focused on recovering from the financial hardships brought on by the pandemic. For many businesses, recovery can come in the form of an Employee Retention Credit (“ERC”), which was introduced in the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and provides financial relief to businesses that kept employees on their payroll throughout the pandemic. Companies can receive up to $5,000 in payroll tax credits per employee on their payroll in 2020, and up to $7,000 in credits per quarter per employee on their payroll for the first three quarters of 2021. To receive this credit, a company must first qualify as an eligible employer. Essentially, the company must demonstrate that their business suffered as a consequence of the pandemic.
How to Qualify as an Eligible Employer
There are two tests for an employer to determine ERC qualification, a government mandate test, or a gross receipts test. An employer would qualify under one test or the other, not both.
Employers whose operations were fully or partially suspended due to government orders limiting commerce, travel, and/or group meetings due to COVID-19 would qualify under the government mandate test.
Separately, employers whose gross receipts declined over 50% in 2020 when compared to 2019, and/or over 20% in any given quarter in 2021 compared to the same quarter in 2019, would qualify under the gross receipts test. Gross receipts are defined as total sales, net of any returns and allowances, plus any other amounts received for services provided. Gross Receipts also include any income from investments, such as dividends, interest, rent, and royalty and annuities, to name a few.
The eligible employer status is determined at both the taxable entity as well as the entity that owns over 50% common ownership of the business.
Once the eligible employer qualification is determined, employers must then quantify the number of employees not performing services during the government mandate to qualify wages.
How to Determine Qualified Wages
There are different qualifications for employers seeking credit for wages paid in 2020 and in 2021.
For companies seeking credit for wages paid in 2020, a company with over 100 employees can seek credit for 50% of wages paid only to employees not performing services; a company with under 100 employees can seek credit for 50% of wages paid to all employees.
For companies seeking credit for wages paid in the first three quarters of 2021, a company with over 500 employees can seek credit for 70% of wages paid to employees not performing services; and a company with under 500 employees can seek credit for 70% of wages paid to all employees.
Regardless of the year a company is seeking credit for, there is a ceiling of $10,000 per employee that can be credited. Qualified health expenses can be included as well.
Once eligibility and qualified wages are determined, an employer should consider how to maximize the ERC in relation to any PPP loans.
How to Monetize and Maximize ERCs
When calculating the ERCs, an employer must coordinate wages in the calculation among Paycheck Protection Program (“PPP”) loans, grants, and credits for paid sick and family medical leave, R&D credits, and Work Opportunity Tax Credit (“WOTC”). Additionally, employers can maximize the ERC by allocating PPP proceeds among employee wages that would never generate an ERC.
For qualified wages in 2020 and the first three quarters of 2021, ERCs must be filed with the Form 941-X.
Fortunately, employers have until 2024 to file for any 2020 ERCs and until 2025 to file for any 2021 ERCs. Therefore, it is not too late to take advantage of these credits. There is a waiting period though. Refund claims are taking up to nine months to be issued by the IRS. Typically, once the ERC refund is received, an employer will debit the amount to the Payroll Tax Liability and credit the amount to the Compensation and Benefits Expense accounts.
Key Takeaways
A thorough review of your Employee Retention Credit eligibility must be done to evaluate the impact of the Coronavirus pandemic on your business and assessing the financial relief benefits that may be available to you. Depending on the size of your business, the pandemic’s effect on your revenues and the number of your employees, the ERC benefit could mean tens of thousands of dollars in tax credits to your company.
What other pandemic-related factors should you be examining? Is your business poised to rebound from this health crisis, or is it vulnerable to economic, environmental, or competitive threats? Boyne Capital can help with a top to bottom analysis of your business, bringing in subject matter experts in accounting, legal, regulatory compliance, human resources, and other disciplines as needed to give you the complete picture. And when necessary, Boyne can also provide the financial underpinnings to stabilize your business and position you for growth.
———————————————-
For more than 75 years, Cherry Bekaert LLP has provided high-quality financial and management services to a diverse and successful client base that includes multinational corporations, private businesses, nonprofit organizations, governmental entities, emerging firms, start-ups and successful individuals. Currently ranked among the nation’s largest accounting firms, Cherry Bekaert helps advance client growth by offering the resources and extensive service opportunities normally associated with national firms, coupled with the personal relationship, value-based fee structure and service continuity of a local firm.
For more information or assistance in qualification and monetization of the ERC, please contact Cherry Bekaert professionals below:
Martin Karamon, J.D., LL.M.
Principal, Tax Credits & Incentives Advisory Leader
Cameron Smith
Business Development Director, Transaction Advisory & Private Equity Services
© 2024 Boyne Capital Partners. All rights reserved.
