With the expansion of the Employee Retention Credit (ERC), there has been a flurry of amended returns for companies that previously were unaware of the credit or were ineligible under the initial statute. As more and more companies become educated on the credit and their eligibility, there has been confusion over the timeline to submit ERC claims.
You’ve seen the advertising for larger companies – slogans like “Hire a Vet” or “We Offer Second Chances” – appealing to certain groups that would be interested in applying for a job, sparked by this type of focused outreach. To combat the labor shortage that some companies are facing, they are expanding their hiring pool to drum up new applicants that might have barriers to employment. These hiring initiatives help to drive down the unemployment rate for groups that have a hard time re-entering the workforce after transitioning from challenging life experiences.
It is evident that the COVID-19 Pandemic has changed the way we live and work. It has also created numerous challenges for business owners. From health and safety mandates to logistical problems, the ability to stay profitable has become an issue for many.
The Employee Retention Credit (ERC) has been a popular topic of conversation throughout the pandemic, yet many organizations believe they don’t qualify, and even more have yet to claim it. There is a good chance you have been inundated with emails, text messages, and phone calls indicating your business or organization qualifies for cash from the federal government. Whether you’ve been too busy to focus on it or had no idea your business was eligible in the first place, we would like to help you understand what all the fuss is about. In doing so, you may consider taking a closer look at how the ERC may apply to your situation.
The Employee Retention Credit, also referred to as ERC, is a refundable payroll tax credit that businesses can receive on qualified employee wages and certain employee benefits beginning March 13, 2020, through December 31, 2021. The program was first introduced by the Coronavirus Aid, Relief and Economic Security (CARES) Act. It was signed into law during March 2020 to assist businesses that were impacted by the COVID-19 pandemic and to encourage businesses to keep employees on their payroll. Since its inception, the program has gone through many revisions with three different acts. The first being the Consolidated Appropriations Act, 2021 (CAA), enacted in December 2020, the second is the American Rescue Plan Act (ARPA), enacted in March 2021, and the third is the Infrastructure Investment and Jobs Act (IIJA), enacted in November 2021. The last act accelerated the end of the program from the initial date of December 31, 2021, to September 30, 2021, for most businesses. However, for wages paid by a Recovery Startup Business, the expiration date remains December 31, 2021.
March 27th, 2022, marks the second anniversary of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), the $2.2 trillion economic stimulus bill that authorized the Employee Retention Credit (“ERC”). The ERC is a refundable payroll tax credit based on wages paid to employees at organizations that either (1) have been fully or partially shut down due to a government order OR (2) had gross receipts decline a certain percentage relative to gross receipts in the same calendar quarter of 2019.
Signed into law on December 27, 2020, the Covid-19 relief bill contains a favorable update to the Employee Retention Credit (“ERC”). The Employee Retention Credit was one of the more successful components of the CARES Act, but there are several significant updates to the credit that are even more favorable for qualified businesses. Several updates can be seen below, along with a comparison to the credit terms under the CARES Act. Unless stated otherwise, the effective date of the provisions covered by the new law will be January 1, 2021.
As the country continues to grind through the COVID-19 pandemic, states have been looking for ways to help businesses impacted by the unprecedented economic downturn. In addition to the incentives offered by the Federal government, several states have acted on their own either by authorizing new, COVID specific incentives, amending existing programs or by working within the confines of the existing rules and regulations of some programs.
A $2.5 million tax credit grant is making its way to 12 states in order to speed up processing times for Work Opportunity Tax Credit Program certifications!
On June 29, 2020, the Governor of California, Gavin Newsom, signed into law the fiscal year 2020-2021 state budget, which included provision AB 85, limiting the ability of certain taxpayers to use net operating losses (“NOLs”) and specific business credits for the 2020, 2021, and 2022 tax years. Specifically, for tax years beginning on or after January 1,2020 and before January 1, 2023, taxpayers with a net business income or modified adjusted income of greater than or equal to $1 million will have their NOLs suspended during the period, and businesses will be capped at claiming $5 million in business credits per tax year.