Simple ‘If/Then’ Scenario Could Clear Up Confusion
As you likely already know, the Employee Retention Credit (ERC), which was created by the CARES Act on March 27, 2020, underwent some pretty significant changes with the passing of the Consolidated Appropriations Act of 2021. It’s important to know that the changes that were enacted will effectively impact the ERC for 2020 as well as 2021. While we continue to wait on additional guidance from the IRS, we thought you would find it helpful to consider the following scenario when determining whether you qualify for the ERC.
IF your operation was either fully or partially suspended due to COVID-19-related governmental order or if your organization experienced a significant reduction in gross receipts (which is defined as)
- For 2020: A 50 percent decline in gross receipts for the same calendar quarter in 2019.
- For 2021: A 20 percent decline in gross receipts for the same calendar quarter in 2019.
THEN you likely qualify for the ERC, which could result in significant refunds for 2020 and/or 2021.
Disclaimer: As already mentioned above, we continue to wait on additional guidance on how to apply some of the rules.
In the meantime, if you have not had your operations fully or partially suspended, you can calculate your comparative gross receipts for the calendar quarters of 2020 versus 2019.
It’s OK To Wait
Tip: If you are able to determine that your business will apply for the ERC, do not move forward with filing for PPP Loan Forgiveness and hold off on applying for PPP2. There is still guidance needed with regard to the overlapping of wages used for the PPP loan versus the ERC. This is particularly important if you operate in any of the following industries:
- Hair Salons
- Nonprofit Organizations (i.e. hospitals, schools, museums, and churches)
If you are unsure as to whether you qualify for ERC, if you should move forward with PPP loan forgiveness or for applying for PPP 2.0, or have any other concerns related to your organization’s access to financial assistance, contact your Rea advisor or reach out to any member of our ERC task force.
By Alan Hill, CPA (Mentor CPA Firm)