Before December 27, 2020’s enactment of the new COVID-19 relief law, you may have chosen the Paycheck Protection Program (PPP) loan and given no thought to the employee retention credit.

Remember, under the original law, you had to choose between the retention credit and the PPP loan. Millions chose the PPP loan route.

But now the game has changed. Did you know? You may, as a PPP recipient, qualify to take the employee retention credit retroactively for the tax year 2020 quarters and also going forward in the tax year 2021. Your Tax Accountant in Maryland can help you claim these. Don’t have a good Accounting Firm In Columbia, MD to help you? Worry not, Sigma is here to help.

Here are the fundamental changes you as a PPP player need to know:

  • PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds. Looking for help with tax preparation in Maryland to claim these credits effectively? Contact Sigma today!
  • Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit. A Columbia Maryland CPA can help you avail these credits.
  • Wages paid from January 1, 2021, through June 30, 2021, can qualify for the more significant 2021 credit. Ask your Accountants In Maryland to claim these for you. We can help you too.
  • For 2021 quarters only, you qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter with the corresponding quarter in 2019. Don’t know which option would be suitable? Allow Sigma, Tax Accountant Columbia MD to help.
  • For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

Employee Retention Credit 101

The CARES Act gives you, if you are eligible, a refundable tax credit against the employer portion of the Social Security tax equal to 50 per cent of wages paid to your employees on or after March 13, 2020, through December 31, 2020. Claim this credit with the help of a professional CPA Firm In Columbia, MD.

You are eligible for this credit if

  • A government order fully or partially suspended your operations during a calendar quarter due to COVID-19 (you have a high likelihood that you suffered this problem)
  • Your gross receipts for a calendar quarter are less than 50 per cent of gross receipts from the same quarter in the tax year 2019, in which case your credit ends in the quarter when gross receipts exceed 80 per cent of gross receipts from the same quarter in the prior year. Sounds confusing? Allow us at Sigma, Accountants In Maryland to simplify it.

Your qualifying wages for the credit depend on the size of your business:

  • If you had more than 100 full-time employees in 2019, then you can take credit for wages paid to your employees when they are not providing services due to either the suspension or decreased business.
  • If you had 100 or fewer full-time employees in 2019, then all your employee wages qualify for the credit during the period of the suspension order or if you are using the gross receipts test, for the entire quarter.

The maximum creditable wage amount is $10,000 per employee for all calendar quarters in the tax year 2020. The definition of wages includes the value of the health benefits you pay on your employee’s behalf.

Does tax preparation and accounting take up your valuable time? Allow a reliable Accounting Firm In Maryland like Sigma to help. Contact us today to avail our premier accounting and bookkeeping services.

Law Before the Holiday Gift

Businesses that selected the PPP option could not claim the employee retention credit. A responsible Columbia Maryland CPA would have helped you choose the best option for your business.

Holiday Gift—Retroactive Changes

In the new COVID-19 relief law enacted on December 27, 2020, lawmakers made two changes retroactive to March 13, 2020:

  1. PPP loan recipients can use the employee retention credit for wages not paid with forgiven PPP loan proceeds.
  2. Group health plan expenses are now considered qualified wages even if your business paid no other wages to the employee (this codified the IRS’s position all along).

Since the change is retroactive as if it were in the CARES Act, you may have unclaimed employee retention credit amounts all the way back to the first quarter of 2020. To claim those missed credits, you will need to amend your payroll tax returns using IRS Form 941-X. A good Accountant In Maryland like Sigma will help you amend your returns quickly and affordably.

IRS troubles? If you have unpaid payroll tax bills from prior quarters, your amended returns could reduce penalty and interest charges on those quarters, granting you even more cash. Don’t let this opportunity slip from your hand. Contact our Accounting Firm today.

The tax Year 2021 Changes

First, and most important, Congress extended the employee retention credit to wages paid through June 30, 2021.

For the two quarters in 2021, Congress increased the credit amount and made it easier for employers to claim the credit with the following changes:

  • The credit rate increases from 50 per cent to 70 per cent of qualified wages.
  • The maximum creditable wage amount increases to $10,000 per employee per quarter (versus per year).
  • You qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of
  • gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter to the corresponding quarter in 2019.
  • The relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

There is one new wrinkle: an employer cannot receive advance payments of the employee retention credit unless the employer has 500 or fewer employees. Need help optimizing your deductions for your medical or dental practice? Contact Sigma, the best CPA For Doctors in Maryland

Important note. The changes listed in this section apply to the 2021 quarters only.

Takeaways – Employee Retention Tax Credit Summary

Before the December 27, 2020 enactment of the new COVID-19 relief law, you may have chosen the PPP and given no thought to the employee retention credit.

Remember, under the original law, you had to choose between the retention credit and the PPP loan. Millions chose the PPP loan route.

But now the game has changed. You may, as a PPP recipient, qualify to take the employee retention credit retroactively for the tax year 2020 quarters and also going forward in the tax year 2021.

Here are the fundamental changes you as a PPP player need to know:

  • PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds.
  • Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit.
  • Wages paid from January 1, 2021, through June 30, 2021, qualify for the more significant 2021 credit.
  • For 2021 quarters only, you qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter with the corresponding quarter in 2019.
  • For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

If you would like my help with the retroactive monies from the employee retention credit, please contact us.