By Matthew R. Staul, E.A., M.B.A.
Since the inception of the pandemic, we have seen a rapid decline in medical practice success rates due to the government shutdowns across the country. Many employers were forced to shut the doors on their life’s work, which left a significant number of people without jobs. In March 2020, the government established the Paycheck Protection Program (“PPP”), which enabled the distribution of approximately $780 billion to qualified small businesses across the country. This program presented an outstanding opportunity to help stabilize the economy and to keep many people employed. Unfortunately, as of May 31, 2021, the PPP program was terminated. Many small businesses are still heavily reliant on government funding, which is why many employers are turning to the Employee Retention Credit (ERC) as an additional safety net.
The ERC is a refundable credit on employment taxes up to 70% of qualified wages and health expenses for up to $10,000 per employee. To qualify for the ERC, your business had to shut down at any period of time by government orders due to COVID-19, or at least experienced a 20% decrease in gross revenue in any corresponding calendar quarter in 2021 compared to the calendar quarter in 2019. For example, employers who qualify can claim up to $14,000 per employee against the employer share of Social Security tax from December 31, 2020, through June 30, 2021. Employers whose businesses were not operating in 2019 can use any quarter in 2020 to compare the figures to determine eligibility. An advantage to employers in this scenario is the ability to compare any quarter in 2020 to any quarter in 2021 if your business started after December 31, 2019.
If you averaged over 500 full-time employees in 2019, the new legislation defines qualified wages as wages paid to employees that were not providing services due to the government ordering the business to shut down or due to the overall decrease in gross receipts. If you averaged under 500 full-time employees in 2019, qualified wages are defined as wages paid to employees during any government-mandated shutdown or any wages paid to employees during the qualified quarter regardless of whether or not they were providing services.
If you qualify, you can claim the refundable ERC on your second quarter Form 941 by July 31, 2021. If you expect to receive the ERC, you can reduce your federal tax deposit by the amount you expect to receive and no failure to deposit penalty will be assessed. The ERC is a beneficial way to recover lost revenue due to the on-going pandemic and qualified employers should absolutely explore this opportunity.
Matthew R. Staul is an enrolled agent with the Medical Management Consulting Group, Inc., a full-service consulting and accounting firm based in Virginia Beach. mmcgonline.com