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An Agents Guide to Employee Retention Tax Credits

Employee retention credits are being extended through Q4 2021 and Club Capital is finding that more than 95% of Agents that opened their Agency after February 15, 2020 qualify for these credits.

The revenue reduction requirement is now lower and businesses that received a PPP loan are now eligible to apply.  While the latest infrastructure bill may have ended the ERTC for a lot of companies across the country at the end of Q3, most Agencies that we see eligible for the Credits are those that qualify as a Recovery Startup and those funds are still available through Q4 2021.

Read on to learn about how you can significantly lower your federal quarterly payroll tax bill and receive credits back from the IRS.

What are tax credits?

Every pay period, you withhold a certain amount of an employee’s earnings—called qualified wages. This money is for federal unemployment (or FUTA) tax which is reported on IRS Form 940, and social security reported on IRS Form 941 or Form 944. Payroll tax credits—like the Employee Retention Credit—let you keep some of this money by reducing the federal taxes and social security you have to pay.

If your tax credit exceeds the amount of tax you’re required to pay, you can get a check in the mail for the difference.

For example, if your quarterly payroll tax bill is $10,000 and you’re eligible for a $6,000 tax credit, your tax payment will be reduced to $4,000. If your tax credit is $12,000 on a tax bill of $10,000, you can get a $2,000 check.

Employee Retention Tax Credits

The CARES Act introduced tax credits for maintaining your payroll. In 2020, it entitled employers to a credit worth 50% of the qualified wages of employees. But in 2021, this amount has been increased to 70%.

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Am I eligible for the Employee Retention Tax Credit?

There are 2 primary ways to qualify for these credits.

1. Most businesses across the country will have to prove that they either: 

  • Suspended operations fully or partially due to a COVID-19-related shut down order

  • Show a 20% or greater decline in gross receipts in the same quarter of the prior year

2. Businesses can also qualify as a Recovery Startup business that is the government's way of qualifying businesses that opened doors during the Pandemic (the date they have put on this is February 15, 2020).  There are 3 primary factors to qualify as a Recovery Startup:

  • Must have started operations after February 15, 2020
  • Maintain gross receipts of $1M or less
  • The ERTC entity aggregation rules will apply for the $1 million gross receipts threshold test and gross receipts for all related entities that have common ownership must be included in the overall gross receipts calculation.  (Simply put: if new Agency Owners also own other companies, this may disqualify them from meeting the Recovery Startup eligibility criteria).

**Recovery startup businesses do not need to meet the revenue decline or government shutdown requirements.**

The Recovery Startup eligibility criteria is the single-biggest qualifier for the Insurance Agency market that Club Capital is seeing.  We are seeing that more than 95% of Agents that started their Agency after February 15, 2020 are eligible for the ERTC.

What is the tax credit amount?

If you qualify for this credit, you can receive up to $7,000 per employee, per quarter. The tax credit is already available, but the program ends on December 31st, 2021.

The amount of the tax credit is equal to 70% of the first $10,000 in qualified wages per employee in a quarter.

Note: Qualified wages do not include sick leave. This means you can take advantage of both credits mentioned in this article.

How do I receive the tax credit?

Your tax credit is taken off your quarterly payroll tax bill. You'll receive the credit in the form of a check from the IRS after an amendment has been made to your quarterly 941 payroll filing.  The estimated wait times from the IRS are between 12-16 weeks to receive the credit check from the time of filing.

Details on Eligibility Criteria for NON Recovery Startups

Full or partial closure due to a government order

A business is eligible for the ERC if they were forced to fully or partially suspend operations or reduce business hours because of a government COVID-19 order. The credit applies only for the portion of the quarter the business is suspended, not the entire quarter. According to the IRS, there are certain businesses that generally do not meet this description and would not qualify: 

  • Those considered essential, unless they have supply of critical material/goods disrupted in a manner that affects their ability to continue to operate. 
  • Businesses shuttered but able to continue their operations largely as-normal through telework. 

An employer that has a significant decline in gross receipts 

For tax year 2020, the business must have seen a 50 percent drop in gross receipts when comparing a quarter in 2020 with the corresponding quarter in 2019.

Under the new law, beginning in 2021, businesses must have seen more than a 20 percent drop in gross receipts in Q1 and Q2 compared to the same quarter in 2019. If you are a new business, the IRS allows the use of gross receipts for the quarter in which you started business as a reference for any quarter in which you do not have 2019 figures. 

Am I eligible if I received a PPP loan?

Yes. The new legislation allows businesses that received a loan under the Paycheck Protection Program (PPP) to qualify for the ERC tax credit. However, the credit can only be applied to wages that are not forgiven or expected to be forgiven under PPP. 

Looking for more information or want help filing for this Credit?  The Club Capital team can help.

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By Micah Cannon | November 18, 2021 | Tax | 0 Comments

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