{"id":589,"date":"2021-08-17T00:56:47","date_gmt":"2021-08-17T00:56:47","guid":{"rendered":"http:\/\/cpabellingham.com\/blog\/?p=589"},"modified":"2021-08-17T00:56:47","modified_gmt":"2021-08-17T00:56:47","slug":"erc","status":"publish","type":"post","link":"https:\/\/cpabellingham.com\/blog\/erc\/","title":{"rendered":"Employee Retention Credit \u2013 Important Updates"},"content":{"rendered":"

On August 4th<\/sup>, the IRS released Notice 2021-49<\/a> regarding the Employee Retention Credit (ERC).\u00a0 This notice includes some very important updates to how the IRS is interpreting the rules of the ERC and includes some complete changes from guidance they released previously.<\/p>\n

Here are some of the critical points (please note this is not<\/u> comprehensive).<\/p>\n

Does the company qualify?<\/u><\/p>\n

First, the company must qualify for the ERC \u2013 either because of government shut down or significant decrease in income.\u00a0 The rules for qualifying for the credit are different for 2020 vs. 2021, so be careful in determining if you are eligible or not.<\/p>\n

Previously the IRS indicated that the only way to measure income for this credit was based on cash receipts from customers.\u00a0 More recent guidance instructs to measure based on either cash basis income or accrual basis income, whichever is used on the federal income tax return<\/em><\/strong>.\u00a0 If you are an accrual basis reporter for your tax return, I recommend you check your income and qualification again, as it may be different than initially indicated based on cash.<\/p>\n

Also, pay attention to the infrastructure legislation that is in process, but not yet passed.\u00a0 It currently includes an update to the ERC to discontinue it as of 9\/30\/21 instead of 12\/31\/21 for most employers.\u00a0 We\u2019ll have to wait and see if this goes through or not.<\/p>\n

What wages qualify?<\/u><\/p>\n

Second, only certain wages qualify for the credit.\u00a0 Again, the rules are different for 2020, 2021, and for businesses that started after 2\/15\/20.<\/p>\n

Previously the IRS indicated that business owners receiving wages could qualify for the ERC.\u00a0 The updated notice changes this position.\u00a0 Wages paid to majority owner (those owning over 50% of the company) cannot be included in the ERC.<\/em><\/strong>\u00a0 The same is true for their family members (with a few very specific exceptions for spouses if the business owner has no living relatives).<\/p>\n

For owners who own 50% or less of the company, the IRS uses very complex \u201crelated parties\u201d rules to determine if their wages or wages of their family members are included.\u00a0 If this is you, I strongly recommend working with a qualified payroll accountant to verify which wages do or do not qualify.<\/p>\n

You cannot use the same wages for the PPP loan forgiveness and the ERC \u2013 maximizing these relief options can take some careful analysis and planning.<\/p>\n

How do I fix it if I did it wrong?<\/u><\/p>\n

If you claimed the credit under prior guidance and you no longer qualify based on these updated rules, you will need to file a form 941-X (amended 941) to remove\/reduce the credit and show additional tax due.\u00a0 Head\u2019s up \u2013 the IRS will likely assess late payment penalties!\u00a0 You can request that the penalties be removed for \u201creasonable cause\u201d \u2013 that reasonable cause being that you filed prior to Notice 2021-49 in which the rules changed.<\/p>\n

Where\u2019s my ERC refund?<\/u><\/p>\n

If you are just now seeing that you are eligible, you can file a form 941-X to claim the credit and obtain a refund from the IRS.\u00a0 Or maybe you have already filed the 941-X and you\u2019re wondering when the check will show up.\u00a0 It will take a very long time<\/u> for them to process it, so don\u2019t hold your breath!\u00a0 The IRS currently has 1.8 million payroll tax returns filed on paper backlogged and waiting to be processed.\u00a0 We have no information about how long it will take them to get through them all.<\/p>\n","protected":false},"excerpt":{"rendered":"

On August 4th, the IRS released Notice 2021-49 regarding the Employee Retention Credit (ERC).\u00a0 This notice includes some very important updates to how the IRS is interpreting the rules of the ERC and includes some complete changes from guidance they released previously. Here are some of the critical points (please note this is not comprehensive). […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":""},"categories":[],"tags":[],"_links":{"self":[{"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/posts\/589"}],"collection":[{"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/comments?post=589"}],"version-history":[{"count":1,"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/posts\/589\/revisions"}],"predecessor-version":[{"id":590,"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/posts\/589\/revisions\/590"}],"wp:attachment":[{"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/media?parent=589"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/categories?post=589"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cpabellingham.com\/blog\/wp-json\/wp\/v2\/tags?post=589"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}