United States , Earlier this year, the IRS posted information to their website explaining that businesses which failed to receive forgiveness for their Paycheck Protection Program (PPP) loans awarded in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, may instead claim the Employee Retention Credit (ERC) for the final quarter of 2020 and the first two quarters of 2021, through June 30th of this year. These changes come as part of a provision in the U.S. Congress’s latest coronavirus stimulus package from December 2020 -- the Families First Coronavirus Response Act (FFCRA).
Employee Retention Credit
This change, the IRS mentions, would allow eligible employers to, “claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees,” between January 1st - June 30th, 2021, with the total amount of qualified wages being limited to $10,000 per employee. The IRS made further mention that any wages which would qualify for either the ERC program or PPP loan forgiveness could be applied to either program, but not both.
“It could add up to a maximum of $7,000 per employee, per quarter,” says Gena Jones, a certified tax attorney and professional business coach with offices in Atlanta, GA, Chicago, IL, and Phoenix, AZ. “For a qualifying business with 10 employees, those eligible employers could get back $200,000 or more,” Jones said. By looking at all those businesses that qualify for the ERC credit but fail to claim it, one potentially could see hundreds of millions in missed credits.
Local COVID Relief Grants
Jones cautions that 2020 and 2021 could be especially complex tax years. Employers should carefully examine how they have booked (i.e., recorded), allocated, and/or used any revenues they have received as part of COVID-19 relief grants or loans that were awarded at a local level.
“Business owners need to make sure that their accountant or CPA has booked any local COVID relief grants or loans they have been awarded throughout the past year as income like PPP,” says Jones. “Many business owners don’t know how to treat such funds in their books. Mistakes could leave them with a significantly higher tax bill.”
For example, in 2020, the city of Phoenix distributed about 200 grants worth $10,000 each in order to help with financial relief for small businesses and their owners. The city of Chicago likewise implemented its Chicago Microbusiness Recovery Grant program which allowed the city to distribute some 1,000 grants - valued at roughly $5,000 each - to businesses with total annual revenue of $250,000 or less.
COVID Paid Sick Leave
Jones also encourages small businesses to take advantage of potential funds that they could see returned as part of the COVID-19 family leave and/or paid sick leave payroll tax credits.
According to the IRS website, those paid sick and family leave credits, which previously were available only until the end of 2020, have been extended for periods of sick and family leave taken by employees through March 31, 2021. As a provision to the FFCRA, this extension would allow qualifying businesses with less than 500 employees and that offer qualified sick leave wages to employees, to claim a tax credit for wages paid to employees who took up to two weeks (80 hours) of leave due to COVID-19 up to $511 per employee, per day. A total of 10 weeks of qualifying leave can be counted towards the family leave credit, for a total potential credit of $5,110.
Finally, Jones reminds business owners that expenses from PPP are now deductible.
“Business owners may overlook many of these opportunities if they choose to file their own taxes or rely on a professional tax accountant or CPA that lacks a national perspective,” said Jones.
Gena Jones is an Attorney, CPA, Certified Tax Resolution Specialist, and business coach for entrepreneurs and small business owners. She utilizes a dynamic approach to ensure success for all of her clients by making sure they have the proper plans in place to win and grow.