Employee Retention Tax Credits - Still Going Strong in Summer 2022!

In this week's episode, Travis discusses the Employee Retention Tax Credits and how they are still going strong in Summer 2022!

Transcript

Hey everybody! Is everybody out there ready for some free money? How about those employers who were nice enough to pay their people all the way through the pandemic and beyond? You are going to get rewarded by the IRS for doing this in the way of some free money! And what I'm talking about is the Employee Retention Tax Credit that came to us from 2020 in the heat of the pandemic. It's contrary to public perception. It is still around and there's some serious confusion among business owners about the qualifications and what's required in order to get this free check. So this little session here that I'm doing is way overdue, as I've had so many people begging me to do something about clearing up the confusion. And well, I've finally given in. Today, we'll talk about the Employee Retention Tax Credit.

        I'm Travis Watkins. Travis Watkins Tax is the name of my Firm and we're seeing some huge checks come in for clients on the Employee Retention Tax Credit or “ERTC” as I'll call it. If you’re a business owner and wondering if you qualify for this, listen up as we talk a little bit about the “ERTC” first and foremost. This thing is much like “PPP” the Paycheck Protection Program, to the extent that you must have employees in order to take this type of credit. So independent contractors, 1099 folks, this isn't for you. This is solely for those employers who have actual wage earning people. Now the “PPP” I should point out, they did include some independent contractors in that thing, but this is not that; this is only for employers of wage earning W2 employees.

        Okay. So no independent contractors. As I mentioned, there's lots of money that's out here right now. The initial dispatch of this money was $400 billion. And to put that in perspective, the first round of “PPP” was $500 billion, just $100 billion more. And that money went in 120 days! So within 120 days, that feeding frenzy resulted in that whole fund being depleted. It was added to the “PPP” project program and was and as many of you know, there was a second iteration of PPP. This $400 billion is still there. In fact, as of about four months ago, only about 5% of that $400 billion had been used. So lots and lots of money is still out there to get, although like any government handout program, it's subject to change overnight, and you gotta get it while the getting's good!

        You MUST take advantage of it! Although there's not that feeding frenzy type of atmosphere here right now, most employers don't even know that it's out there or don't even know what it is. And the reason for that is because it's changed so many times over the course of the last two years. You may have looked at it though and thought you weren't a candidate for “ERTC”, and you probably brushed it to the side. The history of this thing is worth going through because it kind of clears up that confusion. First of all, when it first started out, there was a 100 employee maximum. Now that employee maximum is 500. It used to be credits like the name says, Employee Retention Tax Credit.

        It used to be credits. It used to be advances on your payroll and payroll taxes. Now it's much simpler. The time periods and the window of evaluation of these things that being 2020 and 2021 are obviously now over. And so now all we're talking about is actual rebate money. That means real money, not a credit, not an advance, it's real money. It's a real check. And you're going to be getting that if you qualify, alright? The big confusion was the old version versus the new version because when it first came out, they said you couldn't get both kinds. You couldn't get “PPP” and “ERC”. They were in other words, mutually exclusive. If you took one, you couldn't take the other. It’s not that way anymore. You can now have taken “PPP” rounds one and or two, and still get the “ERC” credit, which is a great huge advancement.

        There used to be different amounts that you could get on this. It used to be 50% of an employee's wages up to a certain amount. Now you can get up to 70% of the employees’ wages up to a maximum of $26,000 per employee. So that's a big change as well. That caused a little bit of confusion of the old versus the new there. I think maybe the biggest one, the one that threw the most people off, it even threw me off, when I was doing this for myself. That was the 7200 Form. There used to be an IRS Form on IRS.gov website where you fill out the questionnaire and go through each one of those things. And that's where you requested your “ERTC'' money. If you go to IRS.gov now and search 7204, what you're going to get is a 404 type of error. Like, don't come here anymore for this application, because it's not there. Some historical version, the old version might be on there, but don't use that. A lot of people saw that, and some professionals are still saying, you're going to fill out 7200 Form. There is really no such thing as a 7200 Form anymore. And that's probably a good thing because 7200 was kind of a mess over at the IRS and they are still a mess over there right now. Everybody's going through as far as labor force and shortages and whatnot. But they were returning a fair amount of these 7200 forms. For instance, if you filled out a 7200 form in 2021 sometime in June 2022 and it was still pending in November, they would send that back to you. They changed it along the way. There's a lot of confusion here and we'll clear those things up. Now you find everything on an IRS 941X 7200 Form. So let's jump right into the qualifications for obtaining a “ERTC'' or “ERC” rebate now. The way that I like to separate this in my mind and you should separate it this way too, is that there's really like two separate columns here. Two separate silos or buckets so to speak and the first one is the sheer qualifications you need in order to be a qualified employer to get the credit.

        It used to be two things there that you could jump into the “ERC”. Now there are three things that can automatically qualify you or the quarters rather to receive the credit. And here's what they are: They've always been full or partial mandated for shutdown. In other words, there was some federal state, city or local ordinance or law saying thou shall go home and not be opened for business. That’s where ERC kicks in, so full or partial shutdown is the big one. So, a lot of bars, restaurants, gyms, salons, those types of folks that were in complete shutdowns for some time, many months, are complete shoe ins. Those quarters that you were shut down are automatically qualified. So, you're in! Second type of hurdle that has been there, although it's changed somewhat, is the requirement that you have some actual gross business receipt losses in some quarter of 2020 or 2021 compared to that same quarter in 2019.

        Okay, so if you had a loss in 2020, let's say in Q2 compared to that Q2 of 2019, the number there that you're looking at, the percentage, it has to decrease 50 % of loss in business - gross business revenue over that quarter in 2020 versus 2019. To qualify, you must show a 50% to decrease that quarter. There was some subsequent legislation that came along that also confused people when it came to 2021. It did get better. You can now show a reduction in gross receipts for 2021, as it relates to that same quarter in 2019, but it only has to be a 20% reduction.

In 2020, you have to show a 50% or more reduction in any quarter of 2021. You only have to show 20%. So that's the second type of qualification in order to fit that quarter into an “ERC” tax credit. The third type of qualification, and this one's relatively new and I think that that is huge because a lot of people don't know about it and kind of snuck in there on us just recently. In fact, and that third qualification would be if you experienced some type of a disruption in your supply chain. And quite honestly, what industry didn’t supply vendors, materials, you know, all those types of things that you generally think of this requirement. I think it is “squishy” enough to fit in just about anything. And that would be the example that I've seen of an attorney's office; you know, let's say that they didn't get as many clients because the courthouse was shut down during that period of time. Or just in general, people were not suing one another or whatever the case may be. There's a chain, a supply chain disruption can take many forms. Just know that it's pretty broad. So that requirement, you don't have to show full or partial shutdown or this reduction in gross receipts versus 2019. If you can show a clear supply chain disruption, then you're in one of the nice things. Now you can mix and match those different things. The full or partial shutdown, the gross receipt reduction or the supply chain disruption requirements, one quarter might qualify for one type and another quarter might not qualify for that same type, but another type. So you can mix and match these to get your $26,000 per employee.

        In this particular silo, that being the requirements, the qualifications tend to get in general. Moving from that first silo onto this second silo, it’s like, “how much do I get silo?” And that's the pure formulas for figuring out what you're going to get from the “ERC”. Now the changes allow for up to 70% of qualified employees, wages and benefits to show up on each quarterly 941. So up to 70%  of what that employee would has made during the quarter or quarters, up to a maximum of $26,000. The caveat to that, the exemption to that, unfortunately, you can't take the employer owner himself or herself into consideration or in that calculation.  It also disqualifies anyone who is family related to that owner.

        So it knocks out the owner from the calculation and also knocks out the owner's family that may have been employed during the quarter in question. So really that's it. You would be looking at the 941  for that quarter and figuring out what part of that relates to employee pay for those non-owners, non-family members. And in a nutshell, we're seeing huge numbers coming off of these tax credits and these calculations so much. There’s really not been any pushback from the IRS when we come up with a 941X. That's the only form that needs to be filed out. Not much pushback from the IRS at all on that. Once we get that calculated, that's pretty much what you can expect in a few months to get when you get an actual check.

        Here's a couple of FAQs that we've seen coming through on this, some frequently asked questions. The first one is, “do I have to repay this money?” Does the check, are there strings attached to it? And the answer to that is no, there's no strings attached. This is not even as prohibitive as “PPP.” This is a rebate. This is replenishing you for and rewarding you for having kept employees at a really difficult time in America and so no repayment is necessary. The other question that we get on this, a fair amount, is it taxable? And the answer to that is also no. This is not a taxable event for you. The money coming in is not taxable. Although there may be some ramifications to old returns as it relates to credits or rather expenses that the business has taken for payroll either in 2020 or 2021.

        I've already mentioned it, but another frequently asked question we get here, “do I still qualify even if I received one or more payments from the Paycheck Protection Program? The answer to that is also no. However, you can't use it in your calculations to get the “ERC.” You can't use any money from “PPP'' that you had already received for a given quarter. Remember there was a certain time limit there for PPP. I think it was eight weeks, two months essentially that you had to spend it on spending that “PPP” money on payroll or utilities, rent, et cetera. You can't use any of that money you used for “PPP” forgiveness in your ERC calculation. Just know that some employers were given a longer period than just that first eight weeks. It went up all the way up to 180 days.

        So watch out for that in the calculation there as well, as there’s a lot of little pitfall. The form 941X will help you, but you need to use some tax professional to get this thing done. And you might consider using us because we've done quite a few of these things now and we know what we're into. We've got the streamlined processes here and it’s going to save you a lot of time and aggravation to use a tax professional in this process. If you want to use us as always, you can go to www.TravisWatkins.com. We have a tab there on the front page relating to the “ERTC '' the Employee Retention Tax Credit, or you can also call 1866-927-1962. And if you're going to be using a tax professional, which I highly recommend that you do, I would also recommend that you use one that doesn’t get paid until you get paid sort of arrangement.

        Even if that's a hybrid situation, some tax professionals are charging some amount for the processing of these things. And then the bill, once the employer has received the “ERTC” check. So do that at least in some hybrid type of arrangement. And that way, you're not so much out of pocket to grab this free money while it's still available. Like I mentioned, it's only available for an unknown period of time. Who knows if the federal government will extend this any further, as far as funding is concerned. It's all one omnibus bill to the nex as it relates to budgetary constraints of the federal government. All right. That number again is 1866-927-1962. I really appreciate you looking at this. And if you've got questions, give us a call about this thing. We'd really love to help you. Thanks.