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The Employee Retention Credit (“ERC”) under the CARES Act, is a relief measure for businesses which encourages them to keep employees on their payroll. It is a fully refundable tax credit that is first used to offset a company’s payroll tax liability. Once there is no longer any payroll liability left for that year; instead of being carried forward to later years, the credit transforms into a tax-free refund that a company can use towards its business.
There has been a lot of confusion and uncertainty when claiming the ERC and Leyton is here to help guide you through the entire process to ensure your claim’s accuracy. Leyton has a dedicated team of Tax experts that can provide clarity to the more complex areas of the ERC.
1. For foreign owned businesses, do attribution rules apply in terms of determining number of employees?
No, while income of foreign owned businesses is required to be included for aggregation purposes; under the IRS ERC FAQ Aggregation Rules, a foreign owned business is only required to include US based employees in determining the number of employees they had to claim the credit and for the purpose of their large employer count.
2. The firm I work for received PPP loans. Are we eligible to claim the ERTC?
The ERC legislation was expanded under the Consolidated Appropriations Act, which took effect on January 1, 2021. As a result of this expansion, all employers who took PPP loans could be eligible for the ERC for 2020 and 2021.
3. What kind of documentation do you need for a government order?
In order to be 100% sure of the eligibility of your claim, we request written documentation showing a company was subject to a government shutdown order. Don’t panic, it’s not as bad as it seems. This written documentation can include emails to employees discussing the shutdown orders, company-wide emails discussing the shutdown, emails to customers/clients, photos from your company’s website discussing the shutdown, and ledgers. We just want to create a paper trail for the periods of time we advise claiming for the shutdown.
4. Must both the decrease in gross receipts and government shut down for the business occur to take the credit?
No, only one must occur in order to qualify for the credit.
5. Are employers limited to 500 employees when determining if you are eligible for the significant decline in gross receipts?
No, there is no-hard cap for the number of employees for claiming the ERC. The large employer rules posted on the ERC FAQ are used to determine if you can use all wages for ERC calculations or only wages paid to individuals for not performing services. Regardless of classification as large or regular employer, you can still qualify for the ERC through the same pathways.
6. Can you explain if related business owners need to aggregate their percentage of shares to determine if their wages are eligible for ERC or not.
Ultimately, yes but there are certain conditions that need to be met through the IRS constructive ownership of related individuals. Our experienced team of tax attorneys and accountants do an in-depth analysis to find out whether any additional companies are required to be included to meet the aggregation rule requirements created by the IRS for the ERC.
7. Do you file ERC with your payroll provider or just complete the 941-x in paper form and send in? Are there pros/cons or either method?
Typically, we say that a company should have either their payroll provider or accountant complete it for you, but you can file it yourselves. While we can’t file the claim for you, we can assist and guide you through the submission process.
8. Would loan payments, paid under the CARES Act on an SBA loan in 2020 and 2021 be included in gross receipts?
Loans aren’t included, but all grants are except for Restaurant Revitalization and Shuttered Venues grants.
9. Can self-employed employer qualify based on wages paid to their employees?
Yes – lf you’re self-employed or a contractor; your business can claim the credit. However, please be aware that you, as an employee, will probably be barred from including your wages as part of the credit calculation through the related individual rule. This rule is currently one of the most controversial rules of the Employee Retention Credit as these types of businesses were amongst the most affected during the pandemic. At the moment, this rule is applied, but there have been requests for the IRS to reconsider.
10. What if company wasn’t in business in 2019?
Business must have been established on or after February 15th, 2020 in order to claim the ERC through the normal means. However, if that business was established after February 15, 2020, it could be eligible for the Recovery Startup Path of the ERC.
Have more questions? Need clarification? Book a complimentary meeting with Leyton to further discuss the Employee Retention Credit.
Book a complimentary meeting with Leyton to further discuss the Employee Retention Credit.
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