A significant number of organizations across the nation are likely eligible for the Employee Retention Tax Credit (ERTC), but since few have claimed it, the tax break may expire early.
If passed, the proposed $1 trillion Infrastructure Investment and Jobs Act will end the pandemic-era tax break three months early, on Sept. 30 rather than the current date of Dec. 31, 2021. Eligible organizations would still be allowed to claim the ERTC for 2020 and the first quarter through the third quarter of 2021, but there would be no credit for the fourth quarter.
The ERTC was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 and is an incentive for employers adversely affected by the pandemic to keep workers on their payrolls. The tax break is given to organizations that have lost significant business or had fully or partially suspended operations due to COVID-19-related disruptions.
In addition to the legislative news, the IRS recently announced new ERTC guidance in .
In other news, the Small Business Administration (SBA) announced changes to the Paycheck Protection Program (PPP) loan forgiveness program, which will be discussed later.
A Look at the New ERTC Guidelines
One of the most significant—and eyebrow-raising—modifications to ERTC guidelines is that a majority shareholder’s wages will be considered disqualified only if he/she has one or more siblings (whether by whole or half-blood), ancestors, or lineal descendants. If a majority shareholder of a corporation does not have a sibling (whether by whole or half-blood), ancestor, or lineal descendent, then the wages paid to the majority shareholder—and his/her spouse—will qualify for the ERTC.
The IRS guidelines also indicate the ERTC is earned the same time qualified wages are paid, so the wages adjustment under Section 280C must be made in the federal income tax return that corresponds to the same time frame. This may mean an amended federal income tax return or administrative adjustment request will be required when the income tax return is filed initially without the Section 280C adjustment.
Other guidelines include:
- Wages paid to part-time employees count as qualified wages, even though only full-time employees are counted to distinguish large employers from small employers
- Cash tips count as qualified wages
- The prior quarter gross receipts test alternative method is an election that may be made discretely during each quarter
A Look at the New PPP Guidelines
The SBA that it will now be easier for PPP fund recipients to have their loans forgiven, in an effort to wind down the PPP program.
The SBA will open a portal for businesses with PPP loans of $150,000 or less to apply for loan forgiveness directly through the SBA instead of their banks. About 7.1 million PPP loans remain outstanding, and about 6 million are for $150,000 or less.
The banks responsible for originating the PPP loans must opt into the SBA’s direct forgiveness system before their borrowers can use the SBA’s online platform. The SBA portal began accepting applications on Aug. 4, 2021. Borrowers of $150,000 or less should reach out to their banks to see if they are opting into the system.
Eligible borrowers will receive an email from the SBA with a link to the online portal if their bank opts in. The application should take less than 10 minutes to complete.
Nate Smith is a Director in the CBIZ National Tax Office. He can be reached at 727.572.1400 or firstname.lastname@example.org.
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