Employee Retention Tax Credit (ERC): Updates, Maximizing Your Credit, and Minimizing Turnaround Times

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MP: Good afternoon, everyone, and thank you for joining us today for employee retention tax credits updates maximizing your credit and minimizing turnaround times.

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MP: For those of you joining us on a webinar for the first time and P, is a full service human capital management services company.

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MP: offering a suite of products and services, including HR payroll benefits administration time and attendance and compliance.

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MP: We support clients with cutting edge technical solutions, as well as proactive reliable service and deep HR and payroll expertise and P is wired for HR and helps clients succeed by aligning our HR strategy with their business goals.

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MP: i’m carly Watson the marketing specialist at MP and i’m thrilled to introduce our presenter today it’s.

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MP: Paul corollas MPs VP of finance and HR services, Paul has over a decade of experience in HR consulting space, working with businesses of all sizes and industries.

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MP: Paul has a team of certified HR professionals and MP that assist clients with compliance training and full circle HR guidance and support.

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MP: If you would like to submit a question during the program please use the Q amp a feature at the bottom of the screen and a recording of this webinar will be sent out later today, following the presentation, along with the slides and with that i’m going to hand the MIC off the blog.

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MP: awesome.

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Paul Carelis: Thank you so much curly.

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Paul Carelis: Welcome to today’s presentation everybody yes please do use a.

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Paul Carelis: The Q amp a feature within zoom if you have any questions at all be happy to respond to as many of those as we can obviously and and working like with clients, as we have been over the last several months on this program there is.

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Paul Carelis: Once we think we know it all, there is a question, or a situation that will stump us so there might be something we have to take offline and research further, but certainly happy to do our best to address any questions you might have to do a.

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Paul Carelis: Quick little disclaimer we hope you get a lot of these presentation and that it’s useful from a HR best practices and informational standpoint.

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Paul Carelis: Please know we are not attorneys nor CPA so please don’t consume any of this as legal advice nor financial advice, but, that being said, let’s see what we can can answer for you.

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Paul Carelis: Alright, so what we hope to cover today.

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Paul Carelis: Just some further clarification or For those of you who are new to this topic and seeing a presentation on the topic for the first time just clarity regarding the eligibility criteria for the 2020 employee retention tax credit versus the.

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Paul Carelis: employer retention tax credit they do differ some definitions of key terms, some updates in regards to the irs guidance.

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Paul Carelis: Some frequently asked questions.

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Paul Carelis: And then.

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Paul Carelis: Just some more detail regarding the process and your questions.

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Paul Carelis: So.

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Paul Carelis: Just a little bit of a quick history lesson here.

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Paul Carelis: Your TC was actually born out of the first stimulus bill that passed.

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Paul Carelis: Last spring.

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Paul Carelis: didn’t get much fanfare didn’t get much utilization everyone kind of ignored it because i’m the the rule was if you took a pee pee pee paycheck protection program loan, you could not also take a year TC loan so.

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Paul Carelis: Everyone went the route of PPP kind of left this program by the wayside, and it kind of just collected dust that all changed at the very, very end of 2020 so the stimulus bill that was passed with December 27 of December 28 of last year, really changed the script on the program so.

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Paul Carelis: Not only did it expand the rtc into the first two quarters of 2021 more importantly it.

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Paul Carelis: eliminated the automatic disqualification for pvp borrower so now all of a sudden in retroactive businesses could now take advantage of both the PPP program as well as the employee retention tax credit Program.

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Paul Carelis: Provided that they didn’t double dip for the same wages so we’ll get into that in a minute, but.

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Paul Carelis: This was a big game changer, this is what kind of got people talking about this and got it popular.

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Paul Carelis: Unfortunately for the accounting Community this all happened, as I said at the very, very end of the year so just as they were getting their busy tax season, the rules in this program suddenly changed.

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Paul Carelis: Also, cut the irs flat for it, though talk about in a moment.

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Paul Carelis: And then finally President Biden earlier this year passed arpa which stands for the American rescue plan.

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Paul Carelis: And this also affected your etc, so what arpa did.

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Paul Carelis: change my audio setting.

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Paul Carelis: Okay let’s switch to phone audio So hopefully, please do comment in the chat or the Q amp a if you do have any trouble hearing me here on out.

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Paul Carelis: But what I was saying is President by past the American rescue plan earlier this year, and this also had an impact on the rotc program so it extended the rtc into two more quarters that being a quarter, and right now quarter three, as well as quarter for of this year.

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Paul Carelis: It also created two new categories of eligibility or expanded eligibility for businesses.

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Paul Carelis: So it created the severely distressed category so businesses and hopefully there aren’t too many of these out there, but businesses that are still really, really dramatically 90% down from from 2019.

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Paul Carelis: They they don’t have to worry about employee count limits in terms of being a large employer, so they could just claim the credit on all their employees that they’re paying it there’s still that severely distressed and that’s in quarter three and quarter for this year.

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Paul Carelis: It also created the recovery startup business category, which I imagine we’ll have more participants in it and the severely distressed.

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Paul Carelis: And the definition of a recovery startup business is a business that started.

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Paul Carelis: on or after February 15 of last year, so kind of just on the cusp of the pandemic or during the pandemic.

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Paul Carelis: And for those businesses they’re allowed to clean and employee retention tax credit in quarter three and quarter for of this year of up to $50,000 per quarter.

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Paul Carelis: without having to meet the other eligibility criteria, the reduce production and gross receipts or the suspension of business operations and we’ll we’ll get into detail about.

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Paul Carelis: What those really mean in the second, but it does create an opportunity for a business that started during the pandemic who hasn’t necessarily suffered due to government regulation or due to a.

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Paul Carelis: Financial performance issue to be able to still claim to the rtc and help give them a boost.

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Paul Carelis: coming out of the pandemic here, or at least hopefully coming out of the pandemic here.

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Paul Carelis: On the flip side, through the irs was also granted an extended period of time to be able to kind of review and inspect the rtc submissions so.

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Paul Carelis: They now have five years to potentially audit and review, so you do want to make sure you’re keeping proper documentation, as you claim these credits, just in case.

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Paul Carelis: And then I just also clarified and expanded the list.

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of potential.

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Paul Carelis: Potential exclusions that you need to factor in when you’re calculating your your your PC amount, so, in addition to the PPP loan which you have to navigate around you do also have to factor in restaurant validation grant shuttered venues grants and extended co but FM la dollars so.

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Paul Carelis: The good news is, at least with the first two of those the restaurant revitalization fund and the shredded venues grant, unlike the PPP there’s.

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Paul Carelis: there’s no requirement that a portion of those dollars, need to be spent on payroll necessarily.

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Paul Carelis: And then, what the restaurant revitalization front, especially you’ve got a really extended window of time to use that money believe in.

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Paul Carelis: 2022 or 2023 if i’m not mistaken, so it’s very easy to strategize and come up with a game plan that will allow you to go maximize the rtc and take advantage of any grant that you were able to receive.

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Paul Carelis: Should you have questions on that where we’ve got a team of experts here that is working with businesses to kind of navigate the cocktail of stimulus programs out there and how to maximize each.

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Paul Carelis: So the first few months after that second stimulus bill passed there was kind of pandemonium and just a lot of uncertainty, so that stimulus bill said, you can use both programs ttp and the rtc but.

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Paul Carelis: there’s a lot of ambiguity, a lot of big information out there, not very much in terms of instruction and.

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Paul Carelis: direction on how to go about claiming this so luckily come March the irs and since has started to release some guidance, with some much needed answers to the questions and really helping to clarify some of the ambiguity with with the programs.

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Paul Carelis: So so First they provided some clarification on on what really qualifies as a suspension of operation, this is important when we talk with businesses if there isn’t a clear path to eligibility, as a result of.

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Paul Carelis: Reduced gross receipts when compared to 2019 we look at the suspension of operations and it’s it’s very rare that a business says yes.

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Paul Carelis: We were the government needed this to be shut down for an extended period of time from march through you know the following march it’s all oftentimes much more subtle and nuanced than that so when you look at the irs.

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Paul Carelis: Language it says that a a partial suspension of operations count as long as it was more than nominal so no one really knew up until this guidance came out what nominal really meant so.

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Paul Carelis: In terms of nominal they’re following a 10% rule, so what they mean by that is.

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Paul Carelis: If a portion of your business that accounts for 10% of your revenues or 10% of your staffing.

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Paul Carelis: Well, is negatively impacted by a coven 19 related regulation, whether that’s federal state city or local.

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Paul Carelis: That would be the avenue to define it as more than nominal so in terms of examples of that that could be.

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Paul Carelis: A brewery who was able to continue their retail sale able to continue selling six packs and whatnot, but they were not allowed to serve people have the bar at the tap room at the brewery.

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Paul Carelis: Another example, might be.

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Paul Carelis: A restaurant, who was still able to do take out, but the dining service was reduced to 50% capacity.

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Paul Carelis: or.

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Paul Carelis: You know, an after school program that could still do some things virtually and have a virtual.

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Paul Carelis: Education piece, but the physical education or the the onsite portion of their program had to be cancelled and they were stuff that could not be done virtually things like that.

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Paul Carelis: The irs also did provide some clarification on how to claim the credit, so we were kind of sitting on some calculated credits, without being 100% sure if I actually go about cleaning them.

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Paul Carelis: So we now know that we’ll get into that in a little bit.

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Paul Carelis: There was also some clarification in terms of owner wages, so the final rule is that if someone is a 50% or greater shareholder in their their family members, they they are excluded from the calculation.

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Paul Carelis: There was also clarification on the aggregation rules, and so, when there is a controlled ownership situation.

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Paul Carelis: Those businesses do have to be aggregated both for good and bad, so the potentially bad is that you have to count all the employees at at all those businesses so it could push an employer to large employer status.

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Paul Carelis: On the flip side the aggregation rules can also benefit you because.

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Paul Carelis: One interesting piece, and something that we haven’t able to leverage, is that the aggregation rules also apply to the expansion of operations.

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Paul Carelis: So, think about it as a business that has locations in multiple states.

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Paul Carelis: And one of their locations within the state that was subject to some really strict covert regulations and restrictions and the other locations we’re not.

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Paul Carelis: What the irs guidance states is that, if one location is subject to a partial suspension of operations.

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Paul Carelis: That can that can apply and allow all of that organizations locations to be eligible for retention credits.

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Paul Carelis: So it doesn’t have to be a majority of the locations or anything like that, as long as one of the locations affected that can be applied across the board, which is can come in really handy.

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Paul Carelis: They also more clearly defined governmental orders, the release date that it can just be a suggestion or a comment or a recommendation from a governor or a government agency, it has to be a mandate and executive order, a law something that’s more formally in place.

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Paul Carelis: And then, finally, the guidance did also provide many scenarios which which really help us in in working with clients and hearing what their situation is and sometimes finding a very close comparison through the scenarios provided by the irs.

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Paul Carelis: So, for instance, they did provide some good clarity regarding the suspension of operation to say.

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Paul Carelis: You know, clarify that a restaurant or even a you know, a fast casual restaurant who’s dying in is limited or restricted, yes, that counts, but a retail store or grocery store got a capacity limit.

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Paul Carelis: But, which results in just a a small line forming outside and customers being forced to wait a few minutes before they can enter the store that does not count as a special of operation so some really good clarity there through the through the scenarios.

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Paul Carelis: So let’s dive a little bit deeper and make sure that everyone’s clear on the avenues eligibility so.

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Paul Carelis: There are two two pathways eligibility and keep in mind that only one of these has to be met.

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Paul Carelis: The first of which is that.

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Paul Carelis: suspension and operations so.

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Paul Carelis: With the rtc.

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Paul Carelis: When operations are fully or partially suspended during any calendar quarter do orders from an appropriate governmental authority limiting commerce travel or group meetings due to Cobra 19.

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Paul Carelis: That that’s your your avenue, where the narrative you want to support.

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Paul Carelis: In terms of using the suspension of operations intelligibility.

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Paul Carelis: Otherwise, the other avenue would be a decline in gross receipts so depending on which years er TC are looking to claim will depend on how much of a declining gross receipts, you need to have.

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Paul Carelis: So let’s do a little side by side comparison here.

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Paul Carelis: This is the, these are the 2020 and 2021 programs, in a nutshell.

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Paul Carelis: So first significant change is the definition of large employer.

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Paul Carelis: So for the 2020 program a large employer is defined as a business, who in 2019 averaged 100 or more full time employees.

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Paul Carelis: For the 2021 program larger employer definition was bumped up and again you look at 2019 but who averaged in 2019 and average of 500 or more full time employees.

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Paul Carelis: A full time employee by definition of this regulation.

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Paul Carelis: is defined as an employee who averaged 30 or more hours per week.

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Paul Carelis: So same hours requirement as the affordable care act, those of you who are subject to the ACTA but we’re a difference from the FDA is that you do not have to count full time equivalents so while part time employees are eligible.

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Paul Carelis: To for an employer to claim credit on they don’t have to be counted in terms of your employee large year full time employee count.

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Paul Carelis: When looking at 2019 so you don’t have to say count to 15 hours a week employees is one full time employee when you’re determining your size, which again helps help certain businesses a ton you know we’ve worked with some multi unit restaurants or retail establishments who.

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Paul Carelis: have a lot of part time employees, but their their full time employee count is somewhat limited so.

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Paul Carelis: That that was advantageous for them and then situation.

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Paul Carelis: Another key difference between the two programs is the required received decline so again you’re always comparing against 2019 but for the quarters in 2020 you need to show a 50% drop between that quarter and 2020 and 2019.

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Paul Carelis: Whereas in 2021 you only have to show a 20% drop.

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Paul Carelis: And you see the Asterix there and the proceeding quarter rule.

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Paul Carelis: What that means is for the program to qualify you’re allowed to either look at the current quarter or the immediately preceding quarter.

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Paul Carelis: So what that means is that if you were wondering about your eligibility, where we are right now in third quarter obviously we’re still in the first month of the quarter.

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Paul Carelis: So you don’t know what your gross receipts are going to shake out as by the end of this quarter and how those will compare.

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Paul Carelis: For businesses that want to be proactive and either have a good idea or a certainty of their eligibility or want to be claiming this on an ongoing basis through through their payroll tax liabilities.

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Paul Carelis: They are you are allowed to look at the previous quarter, so if you’re a quarter to gross receipts or showed a 20% or greater decline when compared to quarter to have.

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Paul Carelis: You can use that to claim eligibility in quarter three.

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Paul Carelis: So Similarly, if you were looking for your eligibility in quarter one of this year, you would be allowed to look at quarter for last year versus quarter for 2019.

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Paul Carelis: The amount of the tax credit itself has also changed, so the 2020 program you’re able to realize a $5,000 credit per employee.

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Paul Carelis: 50% of wages, up to $10,000 in wages.

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Paul Carelis: Whereas this year it’s a 70% credit on $10,000 of wages and each quarter is essentially it’s only rtc program so you can claim up to $7,000 per employee per quarter.

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Paul Carelis: So if a business should find itself eligible all four corners of this year, they could receive up to $28,000 per employee this year.

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Paul Carelis: In terms of the eligibility windows and what wages, you can look at to claim credit on for the 2020 program it runs from March 13 through the end of the year.

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Paul Carelis: And then, this year again, you look at each quarter separately, but all four quarters and all 365 days of 2021 can be factored in.

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Paul Carelis: Alright, so rather than saving all the questions for the end i’m going to take a look at some of the questions that have come in so far and answer what might be pertinent and stuff that we may have already talked about or aren’t otherwise going to cover later on.

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Paul Carelis: So.

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Paul Carelis: Unfortunately, this is, this is a common refrain, but we have applied for 2020 quarter 120 21 and quarter to 2021 etc credits and haven’t heard from the irs at all, no money no letters, etc, is that normal and how long, should we expect to wait for the funds to arrive great question and.

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Paul Carelis: Hopefully it’s comforting to know that you’re not alone.

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Paul Carelis: Please know that you are certainly not alone in this at all.

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Paul Carelis: i’d say the answer lies and how you went about claiming those credits, especially for this year.

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Paul Carelis: So, by the time we knew about the 2020 program everything had to be filed the amended return and 941 X.

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Paul Carelis: For the other quarters this year.

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Paul Carelis: If you have filed your your er TC on the 941 so on the.

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Paul Carelis: The standard filing that that you would have otherwise done to report all of your payroll tax activity from that quarter.

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Paul Carelis: You should receive or received a check i’d say about four weeks after filing your 941 so if your quarter one year Casey was filed on on your 941 you should have received that by now the quarter to add it back hopefully by the end of August.

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Paul Carelis: So no cases, yes, you should have received the check, but if all of your yorkie see claims are on 941 X or something other than the 941 it is unfortunately completely normal to still be waiting so I can’t say that we’ve seen any 2020 etc.

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Paul Carelis: Checks come in just yet.

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Paul Carelis: The best way or the only way really to track that as a right now is by requesting an irs transcript and for those that we have, we are seeing the irs reflecting that.

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Paul Carelis: The return has been received and sent in submitted for for processing of the return, but we haven’t seen any that reflected a check being issued or the processing to be complete.

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Paul Carelis: In terms of timeline with the irs and doing.

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Paul Carelis: It is delayed, it is on paper, from what I read you know they they literally 10s of millions of have amended return, but to try to sort through manually.

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Paul Carelis: Unfortunately, a lot of the stimulus programs really got put into place without them being aware or being prepared for them so they’re playing catch up quite a bit just trying to their software wasn’t designed to incorporate some of these these changes to the tax code, but.

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Paul Carelis: Last, we heard.

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Paul Carelis: They were saying you know, in a worst case scenario, between the time to receive and acknowledge and send for processing, when the time to actually process and issue the checks.

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Paul Carelis: They were saying again hopefully worst case scenario, but it could be up to a seven month timeframe from when that submitted to when when you get a check in hand, unfortunately, and I know that.

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Paul Carelis: flies in the face of providing relief to businesses but that that was as of May, from what i’ve read, they are.

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Paul Carelis: Trying to diversify themselves a little bit in terms of who’s able to process these.

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Paul Carelis: So I believe it was singled out to to irs office location and they are now training additional location and kind of spreading the wealth, a little bit in terms of.

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Paul Carelis: The filings and the paperwork, so they are working to expedite the process and get faster turnaround times, but while that’s going on more and more businesses are learning about the program and taking advantage of it so i’m sure the volume is increasing as well, so.

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Paul Carelis: Unfortunately, that that is where we stand, but.

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Paul Carelis: The best advice right now it’s a moot point unless we’re talking about their quarter, etc, right now, but the best thing you can do is do all that you can to get your your future etc claims on on the 941 rather than an amended return.

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Paul Carelis: On think we don’t know about and we’ll probably talk about it later on, is the form 7200 so that’s the ability to request in advance, before you do your 941 filing.

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Paul Carelis: and historically The turnaround time of those has been two weeks, so I know a lot of people jumped on that to claim their etc credits Thank you may get them in two weeks.

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Paul Carelis: But unfortunately those proved to be just as slow, as the the amended return, so they are making, they are saying they’re making some strides there we haven’t tested the waters were.

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Paul Carelis: Were hesitant to do so, but that is another potential avenue I we don’t yet know if the turnaround time is any faster on the 7200 requests for advanced payment.

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Paul Carelis: Okay, we will be talking about interaction with PPT loans and the rtc.

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Paul Carelis: See.

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Paul Carelis: If you submit an employer attention credit during a quarter and has rejected or denied will there be a penalty assigned by the air so.

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Paul Carelis: I guess it depends on on the circumstances, you know if they feel someone’s being fraudulent.

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Paul Carelis: In the same way that they went after people who fraudulently went after PPP loans.

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Paul Carelis: Potentially there could be some some fines, but if it’s an accounting error or.

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Paul Carelis: An honest mistake in a calculation or something like that there could be interest there could be penalties, but.

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Paul Carelis: We don’t know this for for facts, but we tend to believe that that they’ll save the really hefty fines and penalties for people that they feel were purposely purposely falsifying information to clean the credits.

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Paul Carelis: But That being said, again, we certainly recommend having a strong narrative that you can lean on in terms of eligibility.

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Paul Carelis: Especially you know whether that’s having proof of your gross receipts, or if you’re leaning on the suspension of operations having a.

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Paul Carelis: pretty strong narrative there in terms of of your reasoning and then just keeping all your documentation in a row, especially with with your pee pee pee and and payroll amounts on the PPP application.

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Paul Carelis: Okay, so a question about the 10% rule and travel restrictions as a business was open but due to travel restrictions, the volume of business was impacted.

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Paul Carelis: It would really depend on the particulars there so.

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Paul Carelis: If your business it part of your business model was doing doing work on site for businesses let’s say and that had to be shut down because.

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Paul Carelis: Because of covert restrictions you weren’t able to travel to those locations so let’s say you, you know you did some work overseas and the travel shut down preventing you from doing that, and then I kind of from 10% or more of your business, then yes.

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Paul Carelis: If there were feasible way to travel to locations, but you the businesses didn’t want you traveling in or the employees and feel comfortable traveling in that would mean more towards a no so it really depends on the circumstances and.

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Paul Carelis: evening if if the impact on the travel restrictions that were in place.

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Paul Carelis: did not allow your your business to be able to perform that function so wasn’t something that could be done remotely.

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Paul Carelis: If you use the proceeding quarter rule and use quarter to to qualify for quarter three I presume that when you cannot also claim the credit and q2 itself you actually can so if you could, if you qualify according to you, you can claim quarter two and a quarter three.

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Paul Carelis: Similar we’ll we’ll talk about in a second but it’s just a different way, but similar to how 2020 is measured.

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Paul Carelis: Again, but I think on the next slide.

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Paul Carelis: All right, so let’s let’s move along we’ll get to some more of these questions in a little bit Thank you keep keep them coming.

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up one more here.

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Paul Carelis: were informed by our payroll vendor that form 941 X amendments could not be submitted to the irs electronically, it has to be mailed Is this true.

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Paul Carelis: If so, have you heard what the average timeline for employees to receive a free phone, so I did share a again, it could be up to seven months on the turnaround time and, unfortunately.

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Paul Carelis: Your payroll vendor is is accurate there, there have been accounting groups and lobby groups who have petition the irs to allow 941 X to be he filed, but that is not a current capability, so we are as a payroll vendor ourselves, we are also sending in paper forms, unfortunately.

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Paul Carelis: One other requests that I thought was even more reasonable was to create a separate mailing address for 941 access to claim the rtc credits, but.

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Paul Carelis: they’re also going to the general instructions on 941 X itself a general mailing address to the irs so they’re getting lumped in with all other amendment to do so they’re not doing any themselves any favors in terms of addressing the backlog that way.

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Paul Carelis: Okay, so a few key definitions before we move forward again the wage period after March 20 20th and before January 1 of next year.

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Paul Carelis: Qualified wages, so those are salaries commission’s tips which, which is a question that comes up a lot or similar subject to fica tax, so if I get taxable social security medicare taxable wages gross pay essentially.

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Paul Carelis: You are also allowed to to add in health care expenses as well insurance expenses.

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Paul Carelis: The definition of gross receipts includes total sale and all amounts received for services also includes interests dividends rents royalties and annuities for nonprofits and includes all monies received grants contributions things like that.

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Paul Carelis: So.

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Paul Carelis: In terms of determining declining gross receipts.

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Paul Carelis: For the 2020 program as I suggested and the previous question.

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Paul Carelis: And this is the way you kind of have to look at it.

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Paul Carelis: First, you determine the first calendar quarter and 2020 where your gross receipts or a 50% drop competitor that same quarter and 2019.

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Paul Carelis: You then continue to look at each quarter.

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Paul Carelis: and, should you find a quarter, where the gross receipts when compared to.

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Paul Carelis: showed, less than a 20% decline you’re still able to claim the credit in that quarter, where they rose, but you lose eligibility in the quarter quarter following.

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Paul Carelis: For the kind of show an example of that.

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Paul Carelis: This this company here in quarter to had a 52% drop in quarter to quarter three, the drop is only 17%.

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Paul Carelis: And then in quarter for the drop was only 8% so because they had a 50% or greater dropping quarter to they qualify.

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Paul Carelis: In quarter three it rose above that 80% mark but they’re still able to claim the rtc in that full quarter, but the quarter following meaning quarter for.

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Paul Carelis: The last eligibility because of that rising quarters tree.

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Paul Carelis: So let’s get into some more frequently asked questions.

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Paul Carelis: So I think we just answered this but, again, despite request by business bobby’s groups associations, no luck, you know automating the 941 X process, it is a, it is a paper form at this time.

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Paul Carelis: This is one that comes up sometimes so let’s say a business just.

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Paul Carelis: unrelated the coven decided to.

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Paul Carelis: Change the business model and discontinue a division of their company and as a result for those time periods, this year, and last year, as compared to 2019 when that business unit was operational there’s a gross receipts decline of 20% or more.

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Paul Carelis: A business does not have to give any reasoning, as to why the the cause for the declining gross receipt so oftentimes it is related to coven 19 obviously but.

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Paul Carelis: Whether it is or isn’t that is not important all that’s important in terms of eligibility under the gross receipts would be the.

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Paul Carelis: The numbers themselves.

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Paul Carelis: So this is an important one, the question that we get quite a bit, how do you determine your employee accounts for etc purposes, when it comes to defining yourself as a large employer and a small employer.

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Paul Carelis: So you kind of employees who every 30 or more hours a week or 130 hours per month per each month of.

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Paul Carelis: And divide by 12.

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Paul Carelis: And another question that I don’t think is here is here, so what, if I am considered a large employer what What if i’m considered a small employer.

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Paul Carelis: So the importance for that definition is a small employer once otherwise eligible can claim the employee retention credit on all wages paid to to all employees.

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Paul Carelis: A large employer is restricted to only claiming employee retention credits on wages and payments made to employees who are not performing any work during that time.

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Paul Carelis: So the most common and reasonable application of that would be someone who is a large employer let’s say they’re full time employee come was 250 employees so for 2020 they’re considered a large large employer.

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Paul Carelis: They are restricted to to what they can claim for etc, but most commonly that’ll be is.

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Paul Carelis: Their business was shut down for a period of time during the height of the pandemic they had people on furlough.

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Paul Carelis: Sometimes they provided some payment to those employees on furlough If so, the those payments would be eligible more commonly what it is, is that they kept those employees on the health insurance, so the health insurance costs while employees are on furlough can be claimed for etc credit.

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Paul Carelis: For those larger employers.

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Paul Carelis: But if we’re using my example that 250 employees full time employee business comm 2021 if they’re still eligible is now considered a small employer for that program so they can then claim the credit on all the wages in 2021.

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Paul Carelis: What if my credit exceed my tax liabilities yeah so in working with businesses over the last several months.

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Paul Carelis: We are realizing some really staggering amount of credits for businesses six figure sometimes seven figure credit amounts and oftentimes that is more than what a company paid in payroll tax liability for that year for that quarter.

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Paul Carelis: so important to note the year TC is a refundable advanced tax credit so, even if that credit is more than what your tax liabilities Where are you again, you get a check in the mail eventually from the irs for that amount.

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Paul Carelis: think we covered this a little bit, but can’t cover it too much what qualifies as a full or partial disruption operation.

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Paul Carelis: So again, more than a nominal part of the business operations suspended by a governmental order.

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Paul Carelis: Something that’s important to note and something that a few of our clients, have been able to lean on is that they were an essential business, they did not have their business or a more than nominal part of a business shut down due to governmental order, but what are the critical suppliers.

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Paul Carelis: At a governmental related shut down or suspension of operations in those cases, while that was in effect those businesses can then claim a.

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Paul Carelis: retention credit because of their critical supplier being shut down by governmental water so something to look into.

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Paul Carelis: In terms of claiming the credit you’ve got a few options, so, as I mentioned earlier in the question, the most advantageous on the fastest way has proven to be getting it on the which does you know, help for any any credit that you’re claiming quarter to quarter one or 2020 at this point.

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Paul Carelis: There is a 941 X, which is the most common way now it’s an amendment of your 941 that was previously filed.

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Paul Carelis: There is the form 7200, which is an advance on expected credits and refunds.

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Paul Carelis: Again, who, there were some really severe delays on that as well, so not something we feel comfortable recommending at this time.

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Paul Carelis: And then, lastly, the other option is if you’re competent and your eligibility for the current quarter, especially if you’re using the proceeding quarter rule.

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Paul Carelis: You can go right ahead and reduce your ongoing tax liabilities each pay period by the year TC amount.

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Paul Carelis: That can help certainly for a business who’s strapped cash flow wise and needs immediate relief, but many businesses do like.

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Paul Carelis: The feeling of getting a huge check in the mail and again if you’re if you’re keeping current with it and claiming it right at the end of the quarter and getting it on your it shouldn’t be more than a few weeks to get that in hand.

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Paul Carelis: So, again just kind of in graph form look at what businesses can potentially earn and the rtc per employee, so the light blue is the 2020 program the orange is the 2021 program and the dark blue is the grand total.

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Paul Carelis: We did have a question about PPP interaction and how that factors into your etc and it’s very important and it’s it’s something you want to make sure you get it right, so when it comes to a pvp loan.

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Paul Carelis: You are not allowed to claim er TC on any wages that were paid for with P forgiven PPP phones.

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Paul Carelis: So.

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Paul Carelis: If we look back at 2020 let’s say a business receive the PPP loan and April 1 of 2020 and that ran through.

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Paul Carelis: September of 2020.

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Paul Carelis: If it took them if on their forgiveness application they allocated 100% of their pvp loan towards payroll costs and it took that long for them to exhaust that money through payroll costs that time period would have to be excluded from the rtc calculation.

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Paul Carelis: Provided they’re eligible and all the quarters that they can be they could look back as far back as March 13 capture credits, then, and then also capture credits in the after September, October November, December and claim that way.

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Paul Carelis: But it really hinges on your pvp loan and, more importantly, what you attributed to payroll costs so.

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Paul Carelis: In a case where your pvp loan didn’t even begin to address the the amount of payroll costs that you paid during your coverage period.

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Paul Carelis: As soon as you’ve hit the the amount, you can start claiming ERC so let’s say again, you got your pvp loan and you’re covered period took you from April through September.

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Paul Carelis: But by July, you had had spent all of the PPP or whatever you put on the forgiveness application minus C or other allowable expenses.

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Paul Carelis: And allocated that towards payroll costs, starting with that payroll after after July, you can then claim the rtc even if you’re still looking you’re covered period.

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Paul Carelis: So, most of not all businesses have already submitted their forgiveness applications for 2020 so their hands may be tied a little bit.

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Paul Carelis: If you did include other expenses on your forgiveness application, even if you stated that 100% was.

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Paul Carelis: of it was for payroll costs if, on the forgiveness application it lists rent utilities other allowable expenses, you can subtract that from the payroll costs on the forgiveness application and then kind of look at your payroll reports and see Okay, which date.

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Paul Carelis: Which payroll date that it takes me to hit that number as long as you have at least 60% so that’s the minimum in terms of PPP get to spend at least 60% of your PT loan on payroll costs.

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Paul Carelis: But whatever allowable other allowable expenses, you have and have listed on your forgiveness application as soon as you hit that magic number and payroll costs, you can then start claiming employee retention credits.

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Paul Carelis: So, for those of you who were able to get a second drop PPP loan this year, most people have not yet file for forgiveness for that.

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Paul Carelis: You know the strategic thing to do, there is to should you be able to allocate 60% towards payroll costs.

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Paul Carelis: And then do your best to come up with up to 40% and other allowable expenses, especially with the expanded list, where you can now use supplies PP.

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Paul Carelis: Costs of HR and payroll cloud computing all that kind of stuff if you can minimize your payroll costs and use a PDP funds for payroll costs as close to 60% as possible that will open up the window.

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Paul Carelis: for greater greater claim of the rtc credits so again something something where it may be worthwhile for your strategic add on when it comes to maximizing all the programs.

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Paul Carelis: We do have some resources available, we do have an rtc playbook that we we just released so we’ll send details of that we send out the recording of today’s presentation, along with the slides.

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Paul Carelis: We do also have the decision trees that you see on the screen here with that can help you determine if you may be eligible to further explore employee retention tax credits so depending on your situation your.

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Paul Carelis: You know any restrictions, you are under your gross receipts and this will tell you, based on 2020 and 2021 excuse me whether you may be eligible for pretension credits.

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Paul Carelis: So.

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Paul Carelis: So here are the key things you really want to make sure you’re you’re familiar with, as you explore your potential for employee retention credits it’s important to know the differences between the 2020 and 2021 programs.

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Paul Carelis: it’s important to understand how to calculate your employer size and what that really means again whether you’re a large or small.

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Paul Carelis: You want to make sure you’re correctly calculating your gross receipts if you’re choosing that pathway to eligibility.

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Paul Carelis: You want to understand and make sure you’re confident if you’re going to lean on the suspension of operations guidelines and.

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Paul Carelis: confident in that what what you are subject to qualifies.

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Paul Carelis: You to understand the limitations on owner compensation.

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Paul Carelis: Again, if there are three unrelated parties that each own a third of the business, you can claim those wages it’s more than 50% or greater shareholders and family members.

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Paul Carelis: He didn’t want to understand the aggregation will so having to count all the businesses within the control group and the pros and cons of that and how to things you have to consider that are potential negative versus the things that can benefit you from that.

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Paul Carelis: How to maximize around the PPP so that’s really where we’ve been able to work some magic here is is excluding the PPP that we have to, but then using the time periods before and after that to maximize the credits.

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Paul Carelis: want to make sure you keep proper substantiation of your records for at least five years.

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Paul Carelis: And then also just realized it didn’t too good to be true so again this has been some really rewarding work for us getting to help businesses.

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Paul Carelis: realize some some really large credits and it’s for real it’s it can add up, really, really fast so again, where it’s not uncommon to see an employee retention credit of several hundred thousand dollars or even a million dollars.

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Paul Carelis: And then, lastly, unfortunately, it is important to have some patients with this so when you’re claiming your 2020 credits at this point or quarter one quarter to amending some returns.

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Paul Carelis: Doing most hold your breath, it is taking us a while to get through these but but do know we can request transcripts, we can confirm that they’ve been received, after after a while and show that they’re in progress, but.

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Paul Carelis: We aren’t yet seeing quick turnaround times on this.

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Paul Carelis: All right, so let’s see what other questions we have here.

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Paul Carelis: We have time for.

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Paul Carelis: If you cannot show receipt the client at all compared to is there any pathway to claiming employee retention credits, yes, so, even if, even if your revenues were up if your business was affected by by covert regulations.

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Paul Carelis: Then, then you definitely still qualify, and we have seen a couple of examples of that you know it’s been kind of silver linings unfortunate situations.

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Paul Carelis: Sometimes the business may have added a location so they’re gross receipts are up.

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Paul Carelis: I remember, I spoke to a brewery not too long ago, who said yeah we had to shut down our tap room and that was more than 10% of our business but but takeout sales and the six pack sales more than made up for it, I revenues were actually up but because that happened was closed down.

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Paul Carelis: They were still eligible Similarly, I spoke with a restaurant, who did have to shut down or restrict their dining service, but things really took off with takeout and.

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Paul Carelis: And doordash and all that stuff so their revenues weren’t down anywhere near 20% but because they had to shut down the dining room or severely restrict.

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Paul Carelis: The capacity on dining room and how late the dining room could be open.

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Paul Carelis: That was their pathway to eligibility.

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Paul Carelis: So question regarding employee count and some advisement in 2020 that employee count should be once you’ve gone 941, so there is some guidance on that i’ll make sure.

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Paul Carelis: We include that in our follow up email today.

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Paul Carelis: In terms of reviewing applying for businesses started after February 1 so the day for the for the new businesses is February.

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Paul Carelis: 15 2020 for the startup businesses.

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Paul Carelis: And the way that’s claimed is there, there is a special section on the quarter three and quarter four.

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Paul Carelis: 941 to indicate that it was a recovery start a business and claiming the credit and then again the CAP for those if you’re eligible otherwise.

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Paul Carelis: you’ll want to just use regular the rtc, but if you are recovery start a business that does not, that is not otherwise eligible because of gross receipts or covert regulations and operational shut down, you can claim that recovery startup business credit and again it’s capped at $50,000.

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Paul Carelis: per quarter quarter three and quarter for.

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Paul Carelis: But you will see that as a as an option on the new 941 and the form 7200 as well.

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Paul Carelis: let’s see.

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Paul Carelis: Can I go on through the list here insert a lot of these.

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Paul Carelis: Are businesses considering essential business and remained open during the pandemic our business has been impacted by governmental travel restrictions which led to a significantly lower number of visitors to our state.

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Paul Carelis: This has impacted our volumes under this scenario would we qualify for the year TC.

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Paul Carelis: Unfortunately, probably not so I take it that that there wasn’t a decline in the gross receipts significant enough that the gross receipts were not down 20% or more this year or 50% or more last year.

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Paul Carelis: So it is shorter qualifying under gross receipts if it’s more.

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Paul Carelis: and hate to say it, but you know, fear of the public to travel.

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Paul Carelis: You know something we dealt with, with some mechanics and garages were that they were open, but people aren’t using their cars as much.

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Paul Carelis: Because of government regulations and they weren’t working you know at the office or they weren’t doing road trips and things like that so they’re there and people just weren’t.

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Paul Carelis: patronizing these these garages and the mechanic shops and auto body shops, but when it’s kind of a secondary reasoning.

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Paul Carelis: In terms of how it impacts your business, unfortunately, no, it really has to be a direct or because of one of your suppliers.

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Paul Carelis: A government shutdown and affecting your your industry, in particular in your business that that would have to qualify it couldn’t be that because travel was restricted you didn’t have as many people coming through the door.

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Paul Carelis: That would not qualify at least under the suspension of operations.

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Paul Carelis: Can you compare 2021 again 2019.

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Paul Carelis: Yes, so.

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Paul Carelis: Whether it’s comparing gross receipts for we’re looking at your employee count you always want to compare again 2019 so when you’re looking at that gross receipts measure for 2021 you, you need to compare against 2019 yes.

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Paul Carelis: We have not applied for our second PPP loan forgiveness, but we know that 60% of it was for payroll through the second quarter now in the third quarter 941 filing is okay to ask for employee retention credits before filing our PDP forgiveness so.

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Paul Carelis: Compliance wise, yes, yes, you, you may.

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Paul Carelis: I would just.

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Paul Carelis: Before doing so, just double check and make sure that you’re confident that you’ve got that 60% payroll costs accounted for otherwise you’ll you’ll find yourself potentially having to.

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Paul Carelis: amend your 941 to make a correction, because you overstated your pretension credit amount So yes, that is OK, to do i’d say just double check triple check make sure that you’re confident that you’ve exhausted that 60% in second quarter just to avoid any any mistakes there.

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Paul Carelis: We started business march 15 of 2021 does this qualify as recovery start a business yes yep.

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Paul Carelis: Okay, so looks like those are all the questions and.

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Paul Carelis: Where we’re right at the end of the hour, so this worked out perfectly, thank you very much for these questions, you are great i’m glad we were able to respond to all of them.

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Paul Carelis: Again i’ll hand things over to carly, but we will be following up today and I thank you so much for your time, where do you carly.

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MP: Thank you, Paul for presenting today, and thank you all again for attending this webinar we hope you came away with some helpful information on the latest HR legislations.

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MP: Oh sorry that’s wrong on the latest your see updates, I want to quickly remind everyone that the link to the recording will be sent out this afternoon.

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MP: And please join us next Thursday sorry this Thursday we have sherry Heller sh rm certified HR expert covering ma PF ml, with a focus on avoiding discrimination and retaliation penalties have a terrific day and thank you for joining us.