Great breakdown, thank you! How do you actually receive the tax credits though? Is it on a tax return? Or does the government provide a tax credit on payroll tax, etc? Thank you
The Employee Retention Credit is claimed on Form 941 or 941X (amended) but can also be claimed in advance with a Form 7200 and later reconciled with the actual credit.
If we did not have a significant decline in gross receipts in 2020 compared to 2019, and therefore don't qualify for 2020 retroactive credits... BUT, if we do have a more than 20% decline in the first two quarters of 2021, will we be eligible for ERC credits for Q1 and Q2 2021? What would we be comparing Q1 and Q2 of 2021 to to determine if we are eligible If so? 2019 or 2020?
We are anxiously awaiting further guidance from the IRS on the expanded “ERC” program. Our interpretation of the law itself would be: 1) yes, you should be eligible based on > 20% decline in either of 1st two quarters (it is applied on a quarter by quarter basis so need to look at each quarter separately) and 2) comparing Q1 2021 to Q12019 for the first quarter and comparing Q2 2021 to Q2 2019. However, there is a ‘safe harbor’ within the law that allows usage of the prior quarter instead; we interpret this to mean for Q1 2021 ERC you might be able to compare Q4 2020 to Q4 2019 and for Q2 2021 compare Q1 2021 to Q1 2019. Regarding 2020 retroactive credits, be mindful that another qualifier might be if your business operations were subject to full or partial suspension in accordance with a Government order. There is more information regarding this within the IRS FAQs at www.irs.gov/newsroom/covid-19-related-employee-retention-credits-general-information-faqs (note: as of 1/6/2021, these FAQ’s have not been updated for the new law).
@@troutcpa Thanks! Follow up question? I read that wages of family/relatives of owners are ineligible for the ERC credits? I am an employee of the business for over 20 years, and have been general manager for over 10 years. I am the son of the 100% shareholder owner. At this very moment, I am not a shareholder of the corporation. It is a small corp, 4 employees, S-Corp election. So, if we end up with 20% drop in gross receipts in, say, Q1 2021, compared to Q1 2019, my wages would not be eligible for the ERC credits? Because I am the son of the owner, although a legitimate employee? If so - He wants to make me majority shareholder anyway, so should we put a rush on that, just in case our revenues are down 20%? He takes very little pay from the company these days, compared to me, due to his less involvement.
This is correct as you have described it. See the “1/11/2021 Update” in the video’s description for full information. A full change in ownership is a significant event and will have other implications beyond ERC. You should consult with a tax advisor on your specific situation. If you are a Trout CPA client or interested in becoming one, please call 717-569-2900.
Thank you for this video. Do businesses such as child care providers deemed 'Essential' but were ordered to partially shut down qualify for the ERTC?
Great breakdown, thank you! How do you actually receive the tax credits though? Is it on a tax return? Or does the government provide a tax credit on payroll tax, etc? Thank you
Federal form 7200 and you fax it to IRS.
The Employee Retention Credit is claimed on Form 941 or 941X (amended) but can also be claimed in advance with a Form 7200 and later reconciled with the actual credit.
If we did not have a significant decline in gross receipts in 2020 compared to 2019, and therefore don't qualify for 2020 retroactive credits... BUT, if we do have a more than 20% decline in the first two quarters of 2021, will we be eligible for ERC credits for Q1 and Q2 2021? What would we be comparing Q1 and Q2 of 2021 to to determine if we are eligible If so? 2019 or 2020?
We are anxiously awaiting further guidance from the IRS on the expanded “ERC” program. Our interpretation of the law itself would be:
1) yes, you should be eligible based on > 20% decline in either of 1st two quarters (it is applied on a quarter by quarter basis so need to look at each quarter separately) and
2) comparing Q1 2021 to Q12019 for the first quarter and comparing Q2 2021 to Q2 2019. However, there is a ‘safe harbor’ within the law that allows usage of the prior quarter instead; we interpret this to mean for Q1 2021 ERC you might be able to compare Q4 2020 to Q4 2019 and for Q2 2021 compare Q1 2021 to Q1 2019.
Regarding 2020 retroactive credits, be mindful that another qualifier might be if your business operations were subject to full or partial suspension in accordance with a Government order. There is more information regarding this within the IRS FAQs at www.irs.gov/newsroom/covid-19-related-employee-retention-credits-general-information-faqs (note: as of 1/6/2021, these FAQ’s have not been updated for the new law).
@@troutcpa Thanks! Follow up question? I read that wages of family/relatives of owners are ineligible for the ERC credits?
I am an employee of the business for over 20 years, and have been general manager for over 10 years. I am the son of the 100% shareholder owner. At this very moment, I am not a shareholder of the corporation. It is a small corp, 4 employees, S-Corp election.
So, if we end up with 20% drop in gross receipts in, say, Q1 2021, compared to Q1 2019, my wages would not be eligible for the ERC credits? Because I am the son of the owner, although a legitimate employee?
If so - He wants to make me majority shareholder anyway, so should we put a rush on that, just in case our revenues are down 20%? He takes very little pay from the company these days, compared to me, due to his less involvement.
This is correct as you have described it. See the “1/11/2021 Update” in the video’s description for full information. A full change in ownership is a significant event and will have other implications beyond ERC. You should consult with a tax advisor on your specific situation. If you are a Trout CPA client or interested in becoming one, please call 717-569-2900.
Are Tips also part of the credit?
Yes, they are.