Employer Alert – Employer Retention Credit available for declining sales...

There is a new credit available called Employer Retention Credit, and the IRS clarifications were released just this week.  The matters discussed in the law are quite complex but we will summarize it in the below bullet points.   You might be able to obtain a refund of up to $7,000 per employee per quarter if you qualify under the below rules.  Please first review the below 3 qualification requirements and if you believe you qualify, then contact us:

Qualifications:

SALES LEVEL DECLINE 2021  OVER  2019 (Note we are not talking about 2020 sales but are talking about comparing 2021 sales to 2019):

Sales for 1^st  quarter of 2021 (January to March) has declined by more than 20% of your sales in 1st quarter 2019 (Note this is not comparing 2021 to 2019 sales but 2021 to 2019).  OR

·         Sales for 2nd  quarter of 2021 (April to June)  has declined by more than 20% of your sales in 2^nd quarter 2019 (Note this is not comparing 2021 to 2020 sales but is comparing 2021 to 2019).   OR

·         Same for 3^rd and 4^th quarters of 2021 over the same quarters in 2019.  OR

·         Alternative, to claim the credit for 1^st quarter of 2021,  you can compare 4^th quarter of 2020 sales with 4^th quarter of 2019 sales

PPP LOAN  EXCLUSION:   The amount of funds received as a PPP loan is during 2021 must be deducted from the allowable wages before calculating the ERC allowed wages.

OWNERSHIP / CONSTRUCTIVE ATTRIBUTION RULES EXCLUSION:  The rules on this are quite complicated, but in summary:

  If you are a more than 50% Shareholder of your corporation or entity, then your own wages don’t qualify, but regular employees wages may depending on satisfaction of above items.

·   If a related party is an employee, their wages don’t qualify: Related parties include Child or descendant of a child, brother, sister, stepbrother, or stepsister. The father or mother, or an ancestor of either.  A stepfather or stepmother.  A niece or nephew.  An aunt or uncle.  A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

·  If you own less than 50% of shares of a corporation or entity, your own wages  still might not qualify if you have living relatives listed in above.

CREDIT / REFUND AVAILABLE:   Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax (or the employer’s share of Medicare tax for the third and fourth quarters of 2021) equal to 70% of the qualified wages they pay to employees from January 1 2021  through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is up to $7,000 per employee per calendar quarter in 2021.

HOW TO OBTAIN THE CREDIT:   You have to file an amendment form 941x  or a form 7200.  Contact us if you wish that we prepare these forms for you if you qualify.   Read below for documents needed.

DATA NEEDED IF YOU WANT US TO DO THE ERC CREDIT CALCULATIONS:

1·       QUARTERLY SALES DATA Comparing 2021 to 2019:

If we do your bookkeeping, then ask us to check your 2021 versus 2019 to see if there is a decline in sales over 20%. If you do your bookkeeping then provide your bank statements for January to June 2019 and bank statements from January to June 2021.  If you are unable to provide us the bank statements, then we would not be able to proceed on obtaining the credit as we need to verify the decline in sales as this is a sensitive area and you will be prone to an audit and we have to have things documented.   We have to compare the sales to verify a decline of more than 20% before we can proceed to prepare the amendment, so please provide the bank statements before we proceed.

2.      PPP FUNDS RECEIVED: 

Total Dollar Amount of PPP Loan Received in 2021:_____________

Date PPP received in 2021: _____________

What amount of the PPP funds received has been used for payroll?  We have to calculate how much of the wages of each eligible employee was paid from PPP loan funds and only any wages remaining can be used for the ERC.  In order to do so, please provide any information deemed relevant or indicate what amount of the PPP funds is being used for payroll:  _____________

3.       Ownership:  Please indicate:

Who are the owners of the entity and the percentage of ownership of the entity claiming the Employee Retention Credit:  __________________

Note:   If there are more than one owner, please also mention if there is any relationship between owners described in above under Ownership / Constructive Attribution rules exclusion.

Items needed to setup Payroll:...

EMPLOYEE REQUIREMENTS: 

W-4 FORM:  Employees need to fill out form W4 (see attached).  They need to indicate their filing status sign and provide to employer.

I-9 FORM:  Form I-9 needs to be filled out by both of you and a copy of her social security card and drivers license for example needs to be kept by you on file (don’t send I-9 form to us, but keep for your files, you need it to backup legal / immigration matters).

Direct Deposit:  If employee wants to be paid via direct deposit, then contact us for setup procedures.

EMPLOYER REQUIREMENTS:

Workers Compensation:  You need to have workers compensation insurance in place before you hire anyone.  Contact your insurance agent to obtain WC Insurance. You can apply with the State Compensation Fund for CA at this link

https://www.laborposters.org/california.htm

NEW HIRE FORM:  States usually require that new employees be registered on their systems by you filling out a new hire form and mailing to the state. Our system does not generate or e/file this form and you need to manually mail this form to the State after filling out the employee information.  In CA, you need to file a form DE-34 – Report of New Employees.

Form 8655– After you setup the payroll with us, we will send you form 8655 to review and sign and send back to us with other documents.   Please note that you are not required to setup electronic services through us and you can and it is actually recommended by us that you sign up with the IRS directly at www.eftps.gov   If you sign up through EFTPS.gov, then you can make electronic tax payments required to the IRS and also monitor all taxes which are paid.

Taxability of National Paid Leave...

The American Rescue Plan Act changed the taxability of National Paid Leave under the Families first coronavirus Act. For payrolls dated April 1, 2021, to September 30, 2021, paid leave is now subject to Employer Social Security tax and all FFCRA Paid leave wages must include taxable Social Security wages.

Employee Retention Credit...

Under the old law, if you had a PPP loan, you could not have applied for the ERC. Under the new law, Employee retention credit is allowed even if you had a PPP loan, however, you need to satisfy the 50% or more decline in gross receipts for each quarter of 2020 which declined in sales by 50% for the corresponding quarter in 2019.

Online payroll...

1. Online payroll processing at competitive pricing..

2. Free Setup Free Setup of YTD amounts from your old payroll company (up to first 5 employees) Response to any inquiries from IRS or State included in service

3. Direct Deposit (at no extra fee) Electronic filing of 941’s, 940’s & Most State tax returns W2’s including electronic filing with SSA

TESTING CHANGES

Online Payroll Processing...

1. Online payroll processing at competitive pricing.

2. Free Setup Free Setup of YTD amounts from your old payroll company (up to first 5 employees) Response to any inquiries from IRS or State included in service

3. Direct Deposit (at no extra fee) Electronic filing of 941’s, 940’s & Most State tax returns W2’s including electronic filing with SSA