Important ERTC Update as of September 14, 2023
Amid rising concerns about a flood of improper Employee Retention Credit (ERC) claims, the IRS ordered an immediate moratorium through at least the end of the 2023 year on processing new ERTC claims for the pandemic-era relief program to protect honest small business owners from scams.
The IRS continues to work previously filed ERC claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer.
IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning September 14, 2023 through at least December 31, 2023, following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk.
As a response to the economic downturn caused by the COVID pandemic, the Employee Retention Tax Credit or ERTC was created as part of the CARES Act to encourage businesses to continue paying employees by providing a credit to the eligible employer for wages paid to eligible employees. The refundable credit is available from March 13, 2020 through September 30, 2021 and can be utilized even if companies received PPP loans. Businesses that started up after February 15, 2020 are eligible for up to $100,000 of credits on wages paid from July 1, 2021 through December 31, 2021.
For 2021, there is a maximum credit of $7,000 per eligible employee, per quarter (Q1-Q3 only). The 2021 credit is computed at a rate of 70% of qualified wages paid, up to $10,000 per eligible employee, per quarter (Q1-Q3 only). For Eligible Employers with less than 500 average full-time employees in 2019, the credit is available for all employees receiving wages in 2021.
For 2020, there is a maximum credit of $5,000 per eligible employee. The 2020 credit is computed at a rate of 50% of qualified wages paid, up to $10,000 per eligible employee for the year. For Eligible Employers with less than 100 average full-time employees in 2019, the credit is available for all employees receiving wages in 2020.
An Eligible Employer (including all members of a control group) must either:
- Have their operations fully or partially suspended due to orders from a governmental authority, or
- Suffer a significant decline in quarterly gross revenue as measured against 2019
- 50% decline for 2020
- 20% decline for 2021
A governmental employer is not eligible.
Recipients of PPP loans are eligible to qualify retroactively for the credit in 2020 and 2021.
How to Claim the ERTC
These are the steps that are required to obtain the ERTC:
- Determine if the employer qualifies, and if so, for which quarters
- Determine which employee wages qualify
- Calculate credits, including analysis of PPP interplay
- Reconcile actual credits with advance credits requested
- Prepare reconciled data for Form 941-X
- Prepare documentation supporting eligibility
These steps are technical, but the potential benefit of the ERTC can be enormous for businesses adversely affected by the COVID pandemic.
Please reach out to Massey and Company CPA to see if your business qualifies for the ERTC.
Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, sales tax, and small business accounting and bookkeeping.