By Michael Camden, Director of Site Selection and Business Incentives – Ryan LLC
December 7, 2021
What is the Employee Retention Tax Credit?
The credit is a refundable employment tax credit (i.e. a cash check) established by the CARES Act at the beginning of this pandemic and taken on Form 941. The credit initially was only for 2020 and then was extended through end of September 2021 for qualified companies with qualified wages.
How does a business operator know if they qualify?
There are two ways to qualify. One includes the Gross Receipts test which has many different nuances due to the extensions of the credit. The other is to consider how the pandemic has impacted operations through the Suspension Test by government shutdowns. One way to qualify would be a partial closure of the business. A partial closure can include limited operations for various reasons due to COVID, one of which could be due to a supply chain shortage as a result of the supplier shutdown.
Once a company determines if they qualify, how is the benefit calculated?
In 2020, the credit is a 50% credit of the first $10,000 in qualified wages for the year. In 2021, the credit increased to a 70% credit of the first $10,000 in qualified wages per quarter, excluding the fourth quarter of 2021.
What if my company received forgiveness for a PPP loan, can I also qualify for the retention credit?
Yes, it is possible. We can’t use the same wages to calculate the credit, but it’s possible that additional wages may be used. The law was changed at the end of 2020 to allow a company to take both the PPP and ERTC.
Does my company need to be a specific size to consider the credit?
Yes, you need to have a business with employees separate from the owners and any family members. There are certain rules where the owners may qualify. An ideal company size is 5-500 employees. Once you eclipse 500 employees, you can still qualify, but the rules are more stringent, and the benefit is likely not as beneficial.
What if I own multiple businesses and one had a decrease in revenue while the other did not?
There are attribution rules that the IRS requires be considered when qualifying the size of your business as well as the revenue size. If multiple entities are considered as part of a controlled group in the eyes of the IRS, then they must be consolidated for the revenue test used for qualification purposes. If one business is partially closed due to a government order, the business may still qualify regardless of the revenue test.
What sort of results have you seen with the credit?
We’ve helped companies with as few as five employees obtain $90K and a company with 11 employees obtained $165K. Companies north of 100 employees can secure over a million dollars given the right qualification and fact pattern.
How long does it take to get the credit?
The IRS is a little backed up so it’s taking 6-10 months for the checks to be cut.
How can business owners learn more to see if they qualify?
Please reach out. We have dedicated teams to assist you through the complicated analysis. The first step is to contact me at michael.camden@ryan.com or 318.560.7241, and we can set up an initial discussion.
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