Q: I have heard that it is still possible to get money from the federal government for losses that our agency suffered during the pandemic. Is this money in addition to the Paycheck Protection Program payments? If so, how much can I get, and how do I get it?
A: The federal program that is still in effect is called the Employee Retention Credit (ERC). It is a poorly named program because the amount you can get is unrelated to any taxes that you paid.
To qualify, businesses need to show at least a 50% drop in revenue in 2020 compared with 2019 or at least a 20% drop in 2021 compared with 2019, or they had to be operating under significant government restrictions, which certainly includes nearly all travel business.
The ERC is a credit that first offsets payroll taxes. Then, the part that isn’t used for the credit is refundable to the employer. Employers can receive a benefit of up to 50% of the first $10,000 in pay per employee for 2020 and up to 70% of the first $10,000 in pay per quarter for the first three quarters of 2021, for a total of up to $26,000 per employee that you retained throughout 2020 and 2021.
Here are the catches: First, it is not available to business owners themselves; nor is it available for your independent contractors. Second, you have to exclude pay that was used to figure the proceeds of your PPP loans that were forgiven.
Each of the two PPP loans was good for a maximum of two-and-a-half-months’ pay, so if you received both PPP loans, and they were forgiven, you can only count the part of compensation that was in excess of five months’ pay.
It is not too late to claim the ERC, as you have another year to do so. You need to file a Form 941-X, which allows you to amend your previously submitted Form 941, which is the employer’s withholding tax return. You need one such form for each of the four quarters of 2020 and the first three quarters of 2021.
Then, you need to file Form 7200 to get the refund. If you have more than 100 employees, you are subject to restrictions on refundability, and if you have more than 500, you can’t get a refund.
You will probably need your accountant’s assistance to file, as the program is more complicated than the PPP was. I have read that some accountants are telling clients that you cannot claim an ERC if you have already obtained a PPP loan and had it forgiven, but that is not true.
After you file for a refund, you have to wait, as it is taking the IRS a long time to send out refunds. As of this June, it is taking an average of nine months, but the process will probably slow down in the year ahead as more and more employers realize that they can get this money.
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