Important Announcement for All Business Owners with Employees
Congress passed a COVID relief provision in the CARES act last Spring that allowed companies with employees to gain a credit for every employee retained starting with the first quarter of 2020. We were aware of this provision, but only gave it minor significance. The criteria that had to be met were too stringent to help most of our clients. In order to qualify, a business had to meet the following criteria:
Your gross receipts had to be 50% less than in the same calendar quarter from the previous year, or
You had to have a total or partial shutdown relating to a government restriction from state or local government officials.
So in Kentucky especially, virtually every business had restrictions put in place a year ago and in some form or fashion still in place today. Whether you are under recommendations to not see people in your business (like we are) or to restrict the number of people in your businesses, only pursue online sales or whatever other of the long list of restrictions affected you, your business is likely still under some restrictions today with no immediate end in sight.
So these criteria for our state were fairly easy to meet. Our Norwex reps couldn’t have parties to make sales, for instance. Our retail stores and restaurants were totally closed, but now allowed to see a limited number of customers. Even our construction and manufacturers were told how they had to work – with distancing, masks, additional safety precautions. Many of these restrictions still apply today based on mandates from our local and state governments.
But the CARES act also had one other provision that made this credit undesirable for the majority of our clients – you couldn’t take any Employee Retention Credits if you received a PPP Loan. The PPP Loan was significantly superior as it provided more funds which were forgiven and those funds were tax free, ultimately. We chose the proper course at the time last Spring and applied for PPP Loans for many of you.
The CRP that was passed last week has changed the terms of this credit. Now, an employer can use the Employee Retention Credit even if you had a PPP Loan. And the application of this is made retroactive to last year, back to March 15, 2020.
The credit itself is 50% of an employee’s wages up to $5,000 per employee. The CRP caveat is that you can’t use the same wages that were used for the PPP Loan forgiveness for this credit. So there is a strategic way to approach this that will result in the best outcome for your business. Understand that this is a credit, which means a direct reduction of your taxes dollar for dollar. Like many credits, the underlying expense has to be reduced – but to have the dollars will be a windfall for some of your businesses and beneficial to all to some degree.
And the other CRP provision is that this program was extended through the end of 2021.
This will involve modeling to figure out which dollars qualify. With the interaction with the PPP Loan forgiveness, picking the wrong dollars will reduce the credit. The way the credit is designed, it is awarded on payroll tax returns, not income tax returns. This will involved amending last year’s payroll tax returns and making calculations to adjust the current year’s payroll tax returns to get this benefit.
Because of the timing of this, we will begin filing for these refunds in May after tax deadline is over. If you are interested, give us call at (502) 451-8678 or email us at [email protected].
A team member from our office will reach out to you to discuss the specifics. The amount and nature of the benefits the federal government is handing out is very significant these days – don’t let this one pass you by.