The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided an opportunity for employers to generate a refundable tax credit used to offset their employment taxes and apply for a refund for any excess credit generated through December 31, 2020. The COVID-19-related Tax Relief Act of 2020, as included in the Consolidated Appropriations Act, 2021, further extended the Employee Retention Tax Credit (ERTC) through June 30, 2021, and included certain enhancements that apply starting January 1, 2021.
Below are details on how employers may qualify and the eligible credit during qualified quarters between March 13, 2020, and June 30, 2021.
Paycheck Protection Plan Loan and ERTC
Under the new law, the exception for Paycheck Protection Program (PPP) loan recipients to also claim the ERTC has been waived and applies retroactively. A business or affiliates of a business who received a PPP loan may now go back and claim the ERTC to the extent the business was experiencing a partial suspension of operations—or if they met the 50% reduction in gross receipts test—for the eligible calendar quarters in 2020. PPP recipients may also qualify during the eligible 2021 quarters if they continue to experience a partial suspension of operations or meet the 20% reduction in gross receipts test.
Qualified wages for the ERTC don’t include wages paid from forgiven PPP proceeds.
Claim the Credit in 2020
For employers who didn’t claim the ERTC on their originally filed IRS Forms 941, they may retroactively claim the credits using the IRS Forms 941-X. The same wages used to calculate the ERTC can’t be used to calculate other credits such as the Work Opportunity Tax Credit, Employer Paid Family and Medical Leave Credit (IRC 45S), or other disaster retention credits. Employers have three years from the date the original return was filed, or two years from the date the taxes were paid to file an IRS Form 941-X.
We’re Here to Help
If you have questions about these credits or would like assistance in determining if your business is eligible, calculating the credit and, or claiming the credit, please contact your Moss Adams professional. We also offer a web-based screening tool, MaxCredits®, which can help you reduce the administrative burden of pursuing credits.