The Employee Retention Credit (ERC) is a refundable tax credit designed to assist businesses in maintaining staff levels during the COVID-19 pandemic. It is still available, and some small businesses may still be able to take advantage of it.
The ERC was initiated by the CARES Act (Coronavirus Aid, Relief, and Economic Security Act passed by Congress in 2020) and expanded by the subsequent Relief Act, American Rescue Plan Act and Infrastructure Investment and Jobs Act.
Eligible employers who didn’t claim the credit when they filed their original return may be able to claim the ERC on an amended employment tax return. This is based on compliance with 2020 and 2021 eligibility, which we’ll discuss momentarily. But we recommend that tree care and landscape companies beware of any third parties promoting improper ERC claims, as highlighted in IRS IR-2022-183.
The CARES act provides eligible employers a 50% refundable tax credit for up to $10,000 in paid wages. This allows employers to claim credits of up to $5,000 per employee for 2020.
A business may be eligible to receive the ERC if it experienced either of the following:
- A significant decline in gross receipts of 50% or more in a 2020 quarter compared to the same calendar quarter in 2019. Employers remained eligible for the credit until they reached 80% of their gross receipts for the same calendar quarter in 2019.
- Fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19.
- Fortunately, many in our industry were deemed essential services during the pandemic. However, some locations did not provide our industry with this designation.
Qualified wages paid between March 12, 2020, and January 1, 2021
- Employers with more than 100 employees as of 2019: Qualified wages are defined as wages paid for the time that an employee was not providing services due to hardship, specifically partial suspension of operations by order of the government or significant decline in gross receipts. This amount may not exceed what an employee would have been paid for working an equivalent duration during the 30 days immediately preceding economic hardship.
- Employers with fewer than 100 employees as of 2019: Qualified wages are defined as wages paid to any employee during the hardship.
Qualified health-plan expenses
- Eligible employers may classify amounts paid or incurred that are properly allocable to employees’ qualified wages to provide and maintain a group health plan, but only to the extent that these amounts are paid from an employee’s income.
The Relief Act, American Rescue Plan and Infrastructure Investment and Jobs Act extended the ERC claims period through 2021. In addition to the timeline extension, lawmakers expanded the maximum credit to 70% per employee per calendar quarter, up to $10,000. This shift adjusts the maximum credit available to employers in 2021 from $5,000 per employee per year available in 2020 to $7,000 per employee per quarter in 2021.
Qualified wages paid between January 1, 2021, and December 31, 2021
- Employers with more than 500 employees as of 2019: Employees receiving wages who are not providing services.
- Employers with fewer than 500 employees as of 2019: All employees, regardless of whether they are providing services.
Changes in the eligibility structure for 2021
January 1 – June 30 Relief Act Adjustment
- Redefines a significant decline in gross receipts as a decline in gross receipts greater than 80% compared to the same quarter in 2019.
- Allows new employers not in existence in 2019 to look back to 2020 to determine the decline.
July 1 – October 30 American Rescue Plan Act Adjustment
- Extends qualified fund inclusion to all wages paid by an employer, regardless of size, for employers with gross-receipts declines of greater than 90%.
- Allows recovery start-up businesses with gross receipts of less than $1 million for the three-year taxable period that do not meet other criteria but have experienced a partial suspension or decline in gross receipts to claim the ERC, limited up to $50,000 per calendar quarter.
October 1 – December 31 Infrastructure Investment and Jobs Act Adjustment
- Removes the decline-in-gross-receipts rules related to severely financially distressed employers.
- Limits fourth-quarter availability to recovery start-up businesses and removes the requirement that they are not otherwise an eligible employer.
For additional details on eligibility requirements and procedural changes, view IRS resource IR-2022-183.
Where the credit applies, and how to claim it
The credit is considered “fully refundable” and enables eligible employers to receive a refund if the credit’s total is greater than the federal employment taxes owed by the employer. This means that, for any calendar quarter, if the credit exceeds the employer’s share of social security taxes on all wages paid to employees, the excess is deemed overpayment and will be refunded to the employer under sections 6402(a) and 6413(a) of IRS code.
Employers may retroactively claim the credit by filing Form 941-X for each quarter they paid qualifying wages. Eligible employers may retroactively claim the 2020 ERC through April 15, 2024, and the 2021 ERC through April 15, 2025.
An employer is not eligible to receive the 2020 ERC authorized by the CARES act if the employer received a Paycheck Protection Program (PPP) loan. The Relief Act allows eligible employers in 2021 to claim the ERC even if they received a PPP loan, as long as the wages are not counted for both loan forgiveness and ERC.
Given the considerable funds at stake, employers should be wary of third parties who are advising them to claim the Employee Retention Credit when they may not qualify. These actors may attempt to charge large fees or an amount contingent on the refund amount.
To learn more about potential schemes or solicitations, please review the IRS resource at this link (or at irs.gov/newsroom). And always remember that TCIA is providing readers this information as a resource, which does not, and is not intended to, constitute legal advice.
Josh Leonard is a legislative assistant with Ulman Public Policy, TCIA’s Washington, D.C.-based advocacy and lobbying partner.
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