The IRS issued a moratorium on the processing of new claims for the Employee Retention Credit (ERC) effective on September 14, 2023, through at least the end of the year. This moratorium is in response to the rising level of concerns surrounding questionable claims and aggressive marketing to ineligible applicants. Additionally, the IRS has issued a new questions and answer guide for reviewing eligibility.

As part of the IRS press release, there was emphasize on claims received before the moratorium. The IRS has ensured that they will continue to process these claims, but with enhanced compliance review. The enhanced compliance review will extend the processing goal from 90 days to 180 days, with the potential to extend much further if the claim faces further review or audit. Taxpayers may be requested to provide additional supporting documentation to legitimize their claim.

The IRS has provided advice for taxpayers still awaiting their ERC claims to be processed, based on where they are in the process:

For those that filed ERC claims before the moratorium – The IRS is continuing to process the claims but at a slower rate to combat fraudulent claims from being paid. There is no means available to expedite any individual claim. Additionally, the IRS encourages taxpayers to seek the advice of their trusted tax professional to review ERC eligibility, as additional guidance on withdrawing a claim before it is processed will be released in the near future.

For those who have not yet filed a claim – The IRS is encouraging taxpayers to carefully review the ERC guidelines and seek the advice of trusted tax professionals that understand the complex rules surrounding ERC. The IRS will still accept claims but will not begin processing until the moratorium is lifted.

For those who have received ERC claims – The IRS will be releasing guidance on repaying ERC claims that the taxpayer no longer believes they properly qualify for. This repayment process will assist taxpayers to avoid penalties and future compliance actions.

HBK will continue to monitor for additional guidance. If you have any questions please reach out to your HBK representative.

Contributing Authors: Peter Roupas, CPA, JD, Amelia Mateer, CPA, Josh Masters,CPA, Nabat Mammedova, CPA, Joyce Gebrosky, and Mary Manolakos

If you’re a small business owner and haven’t yet filed your 2021 business tax return, you’re likely talking to your CPA right now. With the deadline looming, you might be in a hurry to complete your return and put taxes behind you, so you can focus on other more pressing business matters. But don’t rush. There are several things to discuss with your CPA before you finalize your return, including some changes in the tax law resulting from the COVID pandemic that could generate substantial savings for you and your business.

Here are three issues that as a small business owner you’ll want to discuss with your CPA:

Employee Retention Credit

The Employee Retention Credit (ERC) is incredibly generous and broad. It can yield a cash refund of up to $7,000 per employee, per quarter. To qualify, your business must have experienced a 20% decrease in revenue in any quarter compared to that same quarter in 2019 (i.e. to pre-COVID levels). For most businesses, the credit expired after quarter three.

Some small business owners, in particular sole proprietors organized as single member LLCs, are overlooking the ERC. Remember, you need only one employee other than yourself to qualify for the credit. Assume, for example, your business has one employee, an administrative assistant and bookkeeper, whose salary for the year is $40,000. You could potentially receive a credit of $7,000 per quarter for quarters one, two, and three. That’s a total credit of $21,000, a significant cash inflow for a small business owner. For businesses with more than one employee, multiply that credit by your number of employees, and you can understand the magnitude of this generous credit.

If you’re a start-up business, and don’t have 2019 revenues, that doesn’t preclude you from taking the credit. Talk to your CPA to determine if your business qualifies as a Recovery Startup Business.

Many businesses, particularly those with 2021 annual revenues that were similar to pre-COVID levels, are surprised to discover that they qualify for the credit. Remember, if your sales dipped by 20% in a particular quarter compared to 2019, you may qualify. Hence, businesses who experience inconsistent revenues from quarter to quarter during the year should be extra mindful to perform those sales comparisons to 2019!

If you qualify for the ERC, your 2021 tax return will be impacted, as the expenses related to the credit are not deductible, which means an increase in taxable income. So be sure to factor this spike when tax planning with your CPA.

Business Meals

New and more generous tax deductions are available for 2021 food and beverage expenses. The rules—some of the changes are considered temporary by the IRS—include:

• Meals are 100 percent deductible if purchased from a restaurant between December 31, 2020, and January 1, 2023. The IRS defines a restaurant for purposes of this provision as a business that prepares and sells food or beverages for immediate consumption. The definition does not extend to businesses that primarily sell pre-packaged food or beverages not specifically for immediate consumption, like grocery stores; beer, wine, and liquor stores; and vending machines. Nor is an eating facility located on the business’s premises considered a restaurant, even if it’s operated by a third-party.
• The 50 percent deduction limitation still applies to food and beverage purchases made at non-restaurants.
• Entertainment expenses remain non-deductible. However, food and beverages purchased at an entertainment event can be deducted if stated separately from the entertainment costs. They can be on a separate bill or listed as separate line items on the bill.

To ensure you maximize your food and beverage deductions, be sure to discuss those expenses with your CPA.

Retirement Plan Options

Tax time is always an appropriate time to discuss your retirement plan funding options with your CPA, as you have until the filing deadline, including extensions, to make your contribution. Have your CPA run different scenarios to determine the appropriate amount to contribute. And if you need more time to determine your contribution for 2021, consider filing an extension.

If you don’t currently have a retirement plan, setting one up now can yield a tax deduction for 2021. And if you have a retirement plan, consider upgrading to another plan, particularly if your earnings for the year increased over previous years, or if you anticipate increases in your future earnings.

Business owners have several plans to choose from, each with its set of rules and requirements:

Traditional IRA:

Must have earned income

Maximum annual contribution amount: $6,000 (an additional $1,000 for ages 50 and older), or amount of earned income if less than $6,000

Contribution deadline: April 18, 2022 for 2021 contributions

Advantages: contributions are generally tax-deductible; earnings are tax-deferred until withdrawn

Self-Employed IRA (SEP):

Must have self-employment income

Maximum annual contribution amount: 20 percent of net self-employment income after self-employment tax deduction, up to a maximum of $58,000

Contribution deadline: due date of return, including extensions

Advantages: easy to set up and maintain; allows you to choose how funds are invested; you are immediately 100 percent vested; no reporting requirements; does not require recurring contributions

SIMPLE IRA:

For employers with fewer than 100 employees

Eligible employees must have earned at least $5,000 in any two prior years and are expected to earn at least that much in the current year

Employee can elect to defer up to $13,500 (an additional $3,000 for ages 50 and older)

Employer can either match employee deferral dollar for dollar up to 3 percent of the employee’s wages, or contribute 2 percent of wages, up to $290,000, for all employees

Advantages: higher contribution limits than a SEP; not as complicated as a 401k

401(k):

Any employer can set up a 401(k) plan

Eligible employees can elect to defer up to $19,500 (an additional $6,500 for ages 50 and older)

Advantages: the maximum deduction for employer and employee; employers allowed to match employee contributions; employee is generally fully vested sooner; plan is managed by professionals; easy for employees to contribute, usually through payroll deductions

So before you finalize your business return this season, be sure to pause and consider whether you’ve fully vetted the above considerations. The tax savings could be significant.

The Infrastructure Investment and Jobs Act was passed in November retroactively terminated the Employee Retention Credit for the fourth quarter of 2021. This excludes businesses that qualify for the ERC as a recovery startup business. On December 6, 2021, the IRS released guidance in Notice 2021-65 for employers who were anticipating a credit and modified their employment tax deposits. The guidance provides the necessary steps to avoid penalties, and remit payment of the credit back to the IRS.

For employers that reduced their employment tax deposits in anticipation of claiming the ERC,, the IRS will not impose a failure to deposit penalty on tax deposits retained before December 20, 2021. To avoid failure to deposit penalties the employer must satisfy the following three tests.

1. The employer reduced its deposits in anticipation of the employee retention credit, consistent with the rules provided in section 3.b. of Notice 2021-24; and


2. The employer deposits the amounts initially retained in anticipation of the employee retention credit on or before the relevant due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date). Deposit due dates will vary based on the deposit schedule of the employer; and or schedule that includes the period from October 1, 2021 through December 31, 2021.


3. The employer reports the tax liability resulting from the termination of the employer’s employee retention credit on the applicable employment tax return or schedule that includes the period from October 1, 2021 through December 31, 2021.

Employers that filed Form 7200 to receive an advance payment of their fourth quarter ERC will need to submit payment back to the IRS by the due date of their applicable employment tax return to avoid failure to pay penalties.

In the event an employer does not qualify for relief under these reasons, additionally penalty relief may be available by responding to the IRS notice and providing reasonable cause.

While the ERC is eliminated, there is still opportunity to claim credits related to 2020 and the first three quarters of 2021. To see if you may qualify, refer to our July 27th Webinar to learn more about the credit. Employers should carefully review this guidance and coordinate with their payroll providers to determine their appropriate deadlines. We’re here to help. Please reach out to HBK to discuss your situation.

As the pandemic has continued to unfold, so has legislation and guidance on the numerous COVID-19 relief options available. Today, as businesses and nonprofit organizations focus on pandemic recovery and other challenges, the requirements of these relief programs may no longer be at the forefront of leaders’ minds. However, these requirements are equally as important as when these organizations received their relief. The following summarizes the major federal COVID-19 relief options offered and their status as of November 15, 2021. Paid Leave Under the Families First Coronavirus Response Act (FFCRA) Status: Expired September 30, 2021 From April through December 2020, certain employers were required to provide employees with paid sick leave or expanded family leave for certain COVID-19 related absences. To receive reimbursement for the required time, employers could receive a dollar-for-dollar payroll tax credit for qualified wages (including certain contributions to health insurance), which was filed on Form 941 (or Form 941-X). Through two pieces of legislation (the Consolidated Appropriations Act and American Rescue Plan Act), the same tax credits were extended until September 30, 2021, although paid leave from January 1, 2021 through September 30, 2021 was not mandated. Employers who have not reflected this pay and claimed their associated credit on their Form 941 may still choose to do so via an amended Form 941-X. For additional information, including qualifications for leave, visit the US Department of Treasury. Economic Injury Disaster Loan for COVID-19 Disaster (EIDL) Status: Available until the Sooner of December 31, 2021 or the Depletion of Funding The EIDL is available to small businesses and nonprofit organizations located in the United States and its territories, all of which have been considered a disaster area due to COVID-19. This program is a loan of up to $2 million that must be repaid directly to the SBA during a 30 year term. For-profit businesses have a 3.75% fixed interest rate while private nonprofit organizations have a 2.75% interest rate. The low-interest, long-term loan is intended to help eligible organizations overcome the disaster (or pandemic) by providing working capital to meet operating expenses. In September, SBA updated the loan program as follows:

• Borrowers can obtain the full $2 million offered by the traditional EIDL program, rather than just $500,000 used for the COVID-19 related loan (presumably due to high demand).
• Payment and pre-payment of business non-federal debt was added as an eligible use of funds.
• The deferral period was extended to 24 months from the loan origination date for all loans.
• Affiliation requirements were simplified to businesses that owners control or in which they have 50% or more ownership.
• Certain size standards for select NAICS codes were edited to increase eligibility.

While loans are still available, the Infrastructure Investment and Jobs Act, signed into law on November 15, rescinds $13.5 billion of funding from this program. In addition, the law rescinds over $17.5 billion from the Targeted EIDL Advance program, a grant program related to the EIDL for certain borrowers who were hit hardest by the pandemic. As a result, potential borrowers are encouraged to apply for loans or related increases to their loans as soon as possible as funding may not be available when the program expires on December 31, 2021. Paycheck Protection Program (PPP) Status: Lenders and SBA Accepting Applications for Forgiveness Borrowers with first draw PPP Loans likely have applied for forgiveness on those loans or have begun making payments. If a borrower has an outstanding first draw PPP loan, has not applied for forgiveness, and is eligible for forgiveness, it is not too late! Borrowers can apply for forgiveness on their loan balance at any time until the maturity date. Now, borrowers with second draw loans are likely considering how to obtain forgiveness. These borrowers are encouraged to review the SBA forgiveness applications and note key changes, including how to test potential reduction safe harbors and how to test for a wage reduction, given that the reference period has changed. Borrowers should also consider the documentation that they should maintain or submit, which may include resubmitting proof of their gross receipts decline that they used to prove their eligibility for their loan. Borrowers will once again use their lender’s PPP forgiveness portal to apply for loan forgiveness. With ten months from the end of the covered period to apply, Borrowers should not rush, but unlike the first draw, patience for more guidance is not likely needed. All anticipated guidance has been released and is available from the SBA and US Department of the Treasury. Employee Retention Credit (ERC) Status: Program Ended for Most, Filings Still Accepted The Infrastructure Investment and Jobs Act includes the retroactive termination of the ERC, meaning that qualified wages paid after October 1, 2021, are not eligible for the tax credit. However, this change is not applicable for Recovery Startup Businesses, who can continue to take the ERC on qualified wages paid through December 31, 2021. A Recovery Startup Business is defined as a business that began after February 15, 2020, earns average gross receipts of less than $1 million, and does not qualify for the ERC under the original test (which is only applicable through the third quarter of 2021). These businesses are limited to a $50,000 credit for each of the third and fourth calendar quarters of 2021. Eligible businesses who have not filed for the ERC can still do so by amending their Form 941 filings via a Form 941X for each quarter where they have paid qualified wages. As the ERC does affect income tax, it is recommended calendar year businesses calculate their ERC and file Form 941-X before the end of the calendar year. For more information about the program, visit the IRS website. Employer Payroll Tax Deferral Status: 50% Payment Coming Due 12/31/2021 From March 27, 2020 to December 31, 2020 employers had the option to defer the deposit and payment of the employer’s share of Social Security taxes and certain railroad retirement taxes. Half, or 50% of the deferred deposit, must then be deposited by December 31, 2021, and the remaining amount must be deposited by December 31, 2022 to be treated as a timely deposit. As the first deadline is quickly approaching, employers who deferred their payroll tax should ensure that they are ready to make their payment before December 31 approaches. Organizations that use a payroll processor are encouraged to contact their processor in advance to avoid any complications. For more information, visit the IRS website. Restaurant Revitalization Fund Status: Funding Depleted, Reporting due 12/31/2021 The Restaurant Revitalization Fund offered certain restaurants, bars, breweries, wineries, and similar businesses with a grant opportunity equal to revenue lost due to the COVID-19 pandemic. Many businesses that were eligible for the grants missed the opportunity due to a limited amount of funding that was quickly depleted. Those who received funds must report how much of their grant has been used against each expense category by December 31, 2021 using the Restaurant Revitalization Fund portal. Businesses unsure of eligible uses of funds can consult the Restaurant Revitalization Program Guide provided by the SBA. Shuttered Venue Operators Grant Status: Funding Depleted Live venue operators, theatrical producers, museum operators, talent representatives and other similar businesses may have applied for the Shuttered Venue Operators Grant, a grant program focused on the hard-hit entertainment industry. Depending on the award amount, businesses may be subject to certain reporting, monitoring, or auditing requirements. As a result, grant recipients should be aware of their individual requirements and ensure they fulfill them. In addition, recipients should ensure that they watch for communications from SBA, which may indicate the need for additional reporting. Grant recipients can also learn more by visiting the SBA Shuttered Venue Operators Grant relief page. Other Considerations Throughout the pandemic, many programs – at the federal, state, and local levels – became available to help businesses navigate the pandemic. Whether your business received funding from one of the listed programs or funding from any other source, consider refreshing yourself on program requirements. Many programs were implemented quickly and later evolved. Recipients must keep up to date with changing guidance and ensure they meet all requirements to obtain or retain such funding. In addition, as you spend funds, consider keeping detailed records of how each program is used. Each funding program has its own requirements, including how funds are spent. However, most prohibit a borrower or fund recipient from “double-dipping”. This means the same expense cannot be reimbursed by funds from two different COVID-19 relief programs. By reviewing program requirements and documenting the use of funds, organizations are prepared to show that their use of funds meets program requirements. For assistance with your COVID-19 relief, please contact your HBK Advisor.

On November 15, 2021, President Joe Biden signed The Infrastructure Investment and Jobs Act. The new law includes significant changes to the Employee Retention Credit (ERC) for the fourth calendar quarter of 2021.

The ERC has been eliminated for wages paid after October 1, 2021. For employers that were anticipating a credit for the fourth quarter of 2021 and have been holding payroll tax deposits should begin making deposits again immediately. We will continue to monitor if the IRS grants any relief for deposits that were not made timely.

An employer can still claim an ERC of up to $50,000 if they qualify under the recovery startup business rules for the fourth calendar quarter of 2021. This opportunity applies to businesses starting after February 15, 2020 and having annual gross receipts of less than $1 million. If the employer owns multiple businesses, there are additional test that will need to be met before determining eligibility.

While the ERC is eliminated, there is still opportunity to claim credits related to 2020 and the first three quarters of 2021. To see if you may qualify, refer to our July 27th Webinar to learn more about the credit. We’re here to help. Please reach out to HBK to discuss your situation.

Highlights from the July 27 HBK webinar featuring Ben DiGirolamo, CPA, JD, HBK Principal; Donald Trummer, CPA, HBK Senior Manager and Tax Specialist; Amy Reynallt, MBA, Manager, HBK Manufacturing Solutions

Employee Retention Credits

The Employee Retention Credits (ERC) relief program has been updated twice since it was first introduced as part for the 2020 CARES Act, first by the Consolidated Appropriations Act, then under the American Rescue Plan.

• The ERC is available to employers for most of 2020 and all of 2021. It can be very valuable to your business.
• Eligibility: Qualified organizations include businesses or tax-exempt organizations that fully or partially suspended operations during any calendar quarter in 2020 or 2021 due to orders from a government authority limiting commerce, travel, or group meetings due to COVID-19, or experienced a decline in gross receipts during the calendar quarter compared to same quarter in 2019. The IRS has issued FAQs on what it means to be fully or partially shutdown.
• For 2020, gross receipts must be 50 percent less than in the comparable 2019 quarter and the benefit continues until a return to 80 percent of those receipts. For 2021, gross receipts must only be less than 80 percent of what they were in the 2019 quarter, and credits continue until receipts recover to 80 percent.
• The declines do not have to be COVID-related, just a qualifying reduction.
• The 2021 trailing test works to allow your qualification to be based on a prior quarter. If you qualify for one quarter you’re generally going to qualify for at least two.

Qualified Wages

For 2020, the ERC equals half of qualified wages, capped at $10,000 per employee. For 2021 it’s 70% of wages up to $10,000 per employee per quarter—up to $28,000 for the year. Wages paid during the entire quarter qualify.

• For businesses qualifying due to government shutdown, qualifying wages are those wages paid during the period of the shutdown.
• For 2020, if more than 100 full-time-equivalent (FTE) employees in 2019, only wages paid to those not working qualify. For 2021, if over 500 FTE employees, only wages paid to those not working qualify.

PPP & ERC

• Recipients of Paycheck Protection Program (PPP) loans can now also take advantage of the ERC.
• Organizations with 100 to 500 employees are no longer restricted to wages only of employees not working, but all employees.
• Wages and healthcare costs substantiating ERC can now be used to support PPP loan forgiveness.
• Employers can elect not to include wage and healthcare cost in computing ERC in order to maximize PPP forgiveness. You can satisfy your forgiveness requirements then maximize ERC. And if portions of your PPP loan are not forgiven, you can apply related wages to recalculate ERC.
• For the vast majority of applicants, PPP was the better option over ERC. But that changes due to the Consolidated Appropriations Act. Now you can maximize PPP expenses and free up wages over your loan amount to use with ERC.

Claiming the credit

You can amend your 2020 payroll tax returns to claim ERC or additional ERC for up to the next five years.

• For 2021, you can reduce your payroll tax deposits by the anticipated credit or wait to claim the credit.
• By administering the credit through payroll, Congress gave organizations the opportunity to first reduce the anticipated payroll tax deposit and if the anticipated credit exceeds the deposit file for a refund.

Common Issues

How to determine to file for businesses separately or aggregated? Might tie businesses together to maximize ERC, given qualifying via the single employer test. Must ensure there is no double dipping on wages and how the qualification rules apply for aggregating businesses.

• Must use the same accounting method used for your tax returns.
• Can include employer and spouse in qualifying wages but not other family members.
• Maximize non-payroll expenses and non-qualifying ERC payroll when applying for PPP loan forgiveness.
• The quickest way to get an ERC refund is by reducing payroll tax deposits.
• The ERC interacts with other tax credits. You can’t double dip on wages. Generally the ERC will deliver a better benefit dollar for dollar.

PPP

Round 1 forgiveness: Borrowers have 10 months from the end of their 24-week covered periods to submit their applications or will have to being interest and principal payments to their lenders. If your deadline is passed, you can still apply for forgiveness for the unexpired part of the loan.

• Some lenders have imposed earlier deadlines, so follow the guidance from your PPP lender. Some lenders are also re-testing originally provided loans to ensure forgiveness only on the amount of loan that accommodates the rules.
• As of July 9, the Small Business Administration is no longer requiring Loan Necessity Question Forms.
• Round 2 is governed by generally the same rules as round 1. There are some minor differences in wage calculation, and the cap for owner compensation in terms of a different time period for reference than round 1. Additional eligibility documentation is also required.
• If you’re coordinating round 2 with your ERC, it may be beneficial to at least wait until end of the 24 week period to apply wages to the program most beneficial to you.

Updates for other relief programs:

• Economic Injury Disaster Loan – Proof of hazard insurance is being requested or of the approval of the loans by the board of directors. Emails are also being sent regarding targeted EIDL grants, and some regarding loan increases of up to $500,000.
• The Restaurant Revitalization Fund is closed. More than 100,000 grants were issued and $29 billion in funding was awarded. There was controversy over the program as intended grants were rescinded. Watch for updates or new legislation.
• Shuttered Venues Operators Grant – Nearly 9000 grants totaling 6.8 billion were awarded. The SBA has been reaching out to organizations suffering 70 percent or more revenue loss in their most recent calendar quarter about supplemental grants. Program has awarded more than 99 percent of its funds.
• Families First Coronavirus Response Act COVID-19 Sick Leave – Expands eligible leave time to include COVID-19 diagnostic testing and receiving or recovering from the vaccine as of April 1, 2021.

The CARES Act, passed in March 2020, included the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) both intended to support employers with payroll expenses during the COVID-19 Pandemic. Initially, businesses were forced to choose between the two programs, as they could only use one. However, when Congress passed the Consolidated Appropriations Act (CAA) in December 2020, eligible organizations were offered more support as they could benefit from both programs, even retroactively. Paycheck Protection Program: first and second draw loans With the enactment of the CAA and American Rescue Plan Act (ARPA), eligibility was expanded to allow certain previously excluded nonprofit entities to apply for a first-draw PPP loan while others who received the first-draw loan could apply for a second-draw loan. This expansion provided many nonprofit organizations additional relief from the COVID-19 pandemic. The program was scheduled to close on March 31; then Congress extended the deadline to May 31. However, on May 5, the Small Business Administration (SBA) announced that lender funding was depleted, closing the application opportunity for most organizations. PPP forgiveness update Borrowers should be aware that any “excess loan amount” received will not be entitled to forgiveness. An excess loan amount is defined as a “borrower or lender error made in good faith that caused a borrower to receive a PPP loan amount that exceeds the borrower’s correct maximum loan amount under the CARES Act and the Economic Aid Act.” Excess loan amounts do not include a knowing misstatement, which could result in fraud charges. The CAA made several changes to PPP loan forgiveness, including making additional nonpayroll costs—certain supplier costs, worker protection expenditures, operations costs, and property damage costs—eligible for forgiveness; permitting borrowers with loans under $150,000 to use a simplified forgiveness application, and giving all borrowers the option to choose a covered period of between 8 and 24 weeks. Borrowers who have not applied for forgiveness for the first-draw PPP loans may want to prepare to apply. The SBA states that “If the borrower does not apply for loan forgiveness within ten months after the last day of the maximum covered period of 24 weeks, or if SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred and the borrower must begin paying principal and interest.” Borrowers should review guidance and forgiveness instructions carefully before beginning the application process. They should also consider benefits applied for and received from other COVID-19 relief programs, such as the Employee Retention Credit (ERC) and Families First Coronavirus Response Act (FFCRA) COVID-19 sick and expanded family leave, to ensure programs are used properly in relationship to one another. 2020 Employee Retention Credit The ERC is a 50 percent refundable payroll tax credit for eligible employers on up to $10,000 of qualified wages paid to employees between March 12 and December 31, 2020. The credit can be broken into two steps: • Determining Eligible Employers: Eligible employers are certain organizations that experienced either of the following during a calendar quarter of 2020: – The organization’s operations were fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings for commercial, social, religious, or other purposes due to COVID-19 – A significant decline in gross receipts during a calendar quarter as compared to the same quarter of 2019. The first eligible quarter is the quarter in which gross receipts are less than 50 percent of the gross receipts for the same quarter in the prior year. Each succeeding quarter is eligible until the following quarter, in which gross receipts exceed 80 percent of the gross receipts for the same quarter in the prior year. For nonprofit employers, the definition of gross receipts has been modified solely for purposes of the ERC to include all operations, investment income, rents, royalties, gross amounts received as contributions, gifts, grants, and similar amounts. • Determining Qualified Wages: Qualifying wages are wages and allocable healthcare costs. For employers eligible under the first scenario above, only wages paid during the period in which operations were suspended qualify. For employers eligible under the second scenario, all wages paid during the quarter fall within the qualifying period. Employers that did not pay wages but covered healthcare costs are eligible for a credit. Qualified wages are further distinguished based on the number of full-time equivalent employees (FTE) during 2019: – For employers with more than 100 FTEs, qualified wages are wages paid to employees not providing services during the qualifying period. – For employers with 100 FTEs or fewer, qualified wages are any wages paid to employees during the qualifying period. Claiming both ERC and PPP loan forgiveness PPP loan borrowers should understand how the PPP interacts with the ERC. The CAA explains: • Wages and health care costs used to substantiate the ERC cannot be used for PPP loan forgiveness (no double-dipping). • Wages must be used first to claim the ERC. • Employers can elect not to include certain wage and healthcare costs in the computation of the ERC, to maximize PPP forgiveness. • Eligible employers may recalculate the ERC in the event the PPP loan is not forgiven. In Notice 2021-20, the IRS provided updated guidance and examples of maximizing the ERC while satisfying PPP loan forgiveness. Generally, the guidance allows taxpayers to take the minimal amount of wages required to satisfy PPP loan forgiveness while potentially increasing their ERC. To claim the ERC for the 2020 tax year, the taxpayer will need to amend their quarterly payroll tax form 941 by filing form 941X for the applicable quarters. If a shutdown impacted the eligible organization in the first quarter of 2020, claim the credit by filing a 941X for the second quarter. 2021 Employee Retention Credit   In addition to permitting organizations that received PPP loans to be eligible for the ERC, the CAA enhanced the ERC through the first two quarters of 2021 as follows: • The credit was increased from 50 to 70 percent of qualified wages. • Qualifying wages were increased from $10,000 per employee per year to $10,000 per employee per quarter. • The “significant decline” in gross receipts was changed from 50 to 80 percent for either quarter as compared to 2019. • Employers can elect to use the immediately preceding quarter and the matching quarter from the prior year to satisfy the gross receipts test. • The number of FTEs was increased from 100 to 500 for determining qualified wages. • The cap on qualified wages using the equivalent duration during the 30-day period immediately before the eligible quarter in which wages were paid was removed. • Businesses can receive the credit in advance. American Rescue Plan Act (ARPA)   On March 11, 2021, ARPA became law, creating additional modifications to the ERC for 2021: • Extends the availability of the credit through December 31, 2021. The ERC and PPP have been modified with multiple changes since their introduction. Employers should consider their options and the relationship between COVID-19 relief programs to maximize their benefits. • Removes the alternative method allowing employers to use the immediately preceding quarter and the matching quarter from the prior year to satisfy the gross receipts test. • Adds Recovery Startup Businesses (RSB) to the list of eligible employers. To qualify as an RSB, the business must have been started after February 15, 2020; have less than $1 million in gross receipts; not be subject to a shutdown order, and not have a significant decrease in gross receipts. RSBs are eligible for and limited to a $50,000 credit for the ERC in the third and fourth quarters of 2021. • Allows “severely financially distressed” employers, those whose quarterly gross receipts declined 90 percent or more compared to the same calendar quarter in 2019, to treat all wages (up to the $10,000 limitation) paid during those quarters as qualified wages. The rule allows an employer with over 500 employees under severe financial distress to treat those wages as qualified wages whether or not its employees actually provide services for the third and fourth quarter of 2021. Eligible employers have three options for claiming the ERC for the 2021 tax year: • Report the ERC on quarterly Form 941, and request a refund or apply it as a credit to the following quarter. • Reduce federal employment tax deposits based on the anticipation of the ERC for the quarter. • File Form 7200 to request the refund in advance based on a projected credit amount that exceeds the amounts that can be withheld from federal employment tax deposits. Use Form 941 to reconcile the actual amount of the credit to the projected amount to correct any balance due or overpayment. The ERC and PPP have been modified with multiple changes since their introduction. Employers should consider their options and the relationship between COVID-19 relief programs to maximize their benefits. We’re here to help. Please reach out to HBK to discuss your situation. Read the full Summer issue of HBK Nonprofit Solutions quarterly newsletter.

The Employee Retention Credit (ERC) in the CARES Act of March 2020 was far less heralded than the law’s Payroll Protection Program (PPP). Justifiably so, because if you received a PPP loan, you were not eligible to take the tax credit. And while the ERC payroll tax credit was an attractive option, the PPP loan held greater appeal as it allowed recipients to offset up to 100 percent of qualifying payroll and non-payroll expenses compared to a credit of 50 percent of qualifying wages paid in 2020 up to $10,000 per employee.

But an enhanced scope for the employee retention credit is now in play. With the passage of the Consolidated Appropriations Act, 2021, signed into law at the end of 2020, PPP borrowers, including healthcare organizations, are no longer excluded from the benefits of the ERC and may now qualify for the ERC benefits.

Here’s how it works:

• The ERC is a fully refundable tax “credit” against an employer’s payroll tax liability or obligation. For 2020, the credit is 50 percent of up to $10,000 of wages per employee, including healthcare costs for some borrowers. In essence, this would generate a maximum of $5,000 credit per employee.
• For 2021, the credit has been increased to 70 percent of up to $10,000 of wages for each employee for each of the first two quarters of the year, resulting in a maximum credit of $14,000 per employee.

An organization or practice must meet one of two requirements to qualify for the credit:

• For 2020, a decline in gross revenue of 50 percent or more in any quarter relative to the same quarter in 2019, or,
• A full or partial suspension or shutdown of the business at some point by government mandate or order.
• As opposed to the 50 percent threshold for 2020, note, for the first two quarters of 2021, the 2021 threshold is a 20 percent decline in gross revenue as compared to the same quarter in 2019. While less likely this year, a full or partial suspension or shutdown of the business at some point by government mandate in the first two quarters would also qualify the organization for the ERC.

While many practices in 2020 may not have met the 50 percent decline requirement, many were restricted from performing elective procedures during at least part of the year, which would qualify them under the second requirement. The period for determining the amount of the credit would vary based on your respective state, but essentially would be the period of time providers were limited in performing elective procedures under state mandates or order. For example, Florida practices, hospitals, and facilities were prohibited from performing elective procedures from March 20 through May 4, 2020, so the qualifying wages would correspond to the amounts paid for that same period.

There is a caveat. If wages are used for the tax credit, those wages must be excluded from the calculations for loan forgiveness by a PPP borrower. If your organization has not yet confirmed forgiveness, or you are in the process of working with your financial institution for forgiveness, allocating wages for the ERC while preserving full PPP loan forgiveness will be key to maximizing the benefits of both relief measures. In addition, by including eligible non-payroll costs with the PPP loan forgiveness, an organization may be eligible for the credit and still earn 100 percent PPP loan forgiveness. The IRS has indicated they will issue additional guidance, which may provide further clarity on using the ERC and PPP together.

If an organization is an eligible employer, qualified wages for the 2020 ERC are determined by the entity’s number of full-time employees. Employers with 100 or fewer full-time employees can include all wages and healthcare costs paid during the eligible period. Employers with more than 100 full-time employees can include wages paid to employees who are not providing services during the eligible period. For the 2021 ERC, the employee threshold increases from 100 to 500. Eligible employers with 500 or fewer full-time employees can include all wages and healthcare costs paid during the first and second quarter of 2021 as eligible wages.

To determine how to qualify for the ERC, or for more information, contact Michael DeLuca, HBK Healthcare Solutions, at 239-482-5522, or by email at mdeluca@hbkcpa.com. held greater appeal as it allowed recipients to offset up to 100 percent of qualifying payroll and non-payroll expenses compared to a credit of 50 percent of qualifying wages up to $10,000 per employee.

Congressional leaders have agreed on a new stimulus package that includes a second round of Paycheck Protection Program loans for certain borrowers and tax relief for small and mid-size companies. President Trump has now signed the bill into law. HBK’s Ben DiGirolamo, CPA, JD, and Amy Reynallt, MBA, discuss the details, help you determine which provisions affect you and your business, and what steps you should take next to benefit from the new stimulus. Discussion topics include:

• Who is eligible for a second draw PPP loan
• Changes to the original PPP forgiveness process that may affect your forgiveness application
• The reversal to the IRS’s notices on tax deductibility of expenses paid for with the PPP loans
• Updates on the Economic Injury Disaster Loan program
• Support for more types of businesses including tax breaks and changes you should know
• Stimulus payments to individuals and extended unemployment benefits

  Download the presentation materials.

On Sunday evening, President Trump signed the Consolidated Appropriations Act, 2021, which includes COVID-19 relief through its Additional Coronavirus Response and Relief section, into law. Despite initial criticism from the President last week, Congress made none of the changes previously requested by the President. Key provisions within the COVID-19 portion of the law include:

• Stimulus checks for eligible individuals
• The extension of certain unemployment benefits
• An extended and expanded Employee Retention Credit
• Changes to existing Paycheck Protection Program (PPP) loans, including clarification that expenses paid with forgiven PPP loan funds will now be deductible for federal income tax purposes
• A second draw PPP loan for eligible businesses
• The extension of several tax credits and deductions

  For a summary of the law’s major COIVD-19 provisions, visit Agreement Reached! New Stimulus Package Expected to be Passed into Law. Over the coming days and weeks, it is expected that additional guidance will be issued from agencies including the Small Business Administration (SBA), Department of the Treasury, Department of Labor (DOL), Internal Revenue Service (IRS), and others that may facilitate these COVID-19 relief programs. Individuals and businesses interested in these relief options are encouraged to watch for this guidance as well as communications that may indicate when such programs are made available. For questions regarding this law or your COVID-19 relief options, please contact your HBK Advisor.