The Collaborative: New Tax Credits To Help Communities
New Tax Credits in 2021
Today we have Todd Mardis with us to talk about tax credits. Todd has a specialized tax practice. His team of tax attorneys provides advanced tax planning. They run to the tax code to look at what’s available, especially for business owners.
(Note: If you are not a business owner, you know business owners. Our communities have been hit hard this year, many businesses are struggling and that means fewer jobs. Let’s help our communities by helping business owners. Please share this with any business owner you know!)
In doing this, you found some really cool benefits available now. In the CARES Act, there is a section that applies to having employees, and so that’s what you’re going to share with us today about the tax credit, right?
ERC – Employee Retention Credits
Yes. Part of the COVID-19 tax credit plan is ERC or employee retention. There have been some changes to it in the most recent legislation in 2020.
You really have two options then the CARES plan was first introduced. The first but less used option was the employee retention credit. If you saved an employee from being terminated and you kept them through the government-mandated shutdowns. Shutdowns that we all experience. Then they would allow you to receive a tax credit of up to $5000 per employee and the business owner would in most cases be an employee as well.
Or you could choose to engage the PPP loan program, and most business owners chose the PPP because it was more beneficial and more substantial.
Now they passed the 2021 CARES Act incentives and they’ve changed the legislation and it allows you to use the Employee retention Credit in conjunction with the PPP program. Originally, you couldn’t use both.
This is a mini-stimulus that Congress has put into legislation.
The first way a business qualifies for it is they recognize a 20% loss in one quarter of 2020 compared to 2019. That 20% loss could be compared to the fourth quarter of 2019 and the first quarter of 2020 as an example.
In those scenarios, they would automatically be eligible for this credit. Now, this credit is actually a refund because the payroll has already been paid. The way the math works is you get a 50% or a $10,000 maximum tax credit.
So in a scenario where you have 10 employees and one employer, that would automatically create a tax refund of $55,000. There’s nothing that you have to do to qualify other than had that loss or been in an industry that had some type of mandate for a shutdown or a stay at home order from a municipality or state or County.
So it is highly unlikely that you can come up with any business in 2020 that won’t qualify for this tax refund of $5000 per employee. The maximum number of employees that you can have full time is 100 in 2020.
It gets a little better in 2021. The language going forward in the first and second quarter of 2021 has been enhanced to say that you can have up to 500 employees and the tax credit jumps from 5 to $7000 per employee. The only caveat here is you do have to show a loss of earnings in the first or second quarter of 2020 compared to any quarter in 2019.
We did an analysis for a business with ten employees. There is a $50,000 credit from the first round of ERC and $ 70,000 in tax credits for the second quarter. In total, you’re looking at right at $190,000 of either credits or refunds that these employers have at their disposal.
Now, if you’re like me, you’re probably thinking this makes absolutely no sense, right? Just like the CARES Act made no sense when they did the loan forgiveness up to $150,000 removing it from being a taxable event in 2020. This is just again a mini-stimulus that Congress has passed.
Helping Local Businesses
We believe that every business owner out there almost across the board will qualify.
We know for a fact that there will be people who never hear of this tax credit. We know there will be people who have advisors and other professionals who won’t take the time to fill out the paperwork and gather the correct documentation to have this implemented for their clients.
So for businesses, even if they’re doing good, this will help them improve and grow better. But those that are struggling, which I know that there is a lot, this really helps pay those employees and the bills.
We’re all going to pay this back just like the CARES Act. So for a business owner, even if they’re doing well, you know that they need to take advantage of this because you know eventually the tax guy is going to come knocking.
I have a feeling that Congress has a limit on what they’ve allocated in these tax credits, so knowing that just about every business owner in America will qualify for this. I think it’s imperative that we get this information out to the business owners.
In our staff meeting today, we went through this with all our attorneys and CPAs. One of our attorneys said why wouldn’t someone do this and we really can’t come up with a good reason why someone wouldn’t do this.
Schedule a call today to learn more and secure the benefits available to you!
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