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Employee Retention Credit: You May Qualify!
For businesses that have been severely impacted by COVID-19, an employer tax credit was provided under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), called the Employee Retention Credit. The purpose of the Employee Retention Credit is to encourage businesses to keep employees on their payroll during these challenging times. For 2020, the Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that eligible employers pay their employees. The credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages considered for each employee is $10,000 for all calendar quarters, with a maximum credit of $5,000. This high-level summary of the qualifications and the process for claiming the credit can help you determine if you qualify. Who is an Eligible Employer? As defined under the CARES Act, an eligible employer is any employer that carried on a trade or business during calendar year 2020 and met either of the following criteria during any calendar quarter in 2020: The operation of the trade or business was fully or partially suspended due to government orders limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19. The employer had a significant decline in gross receipts for the quarter as compared to the comparable quarter in 2019. To qualify as having a significant decline in gross receipts for 2020, the business must demonstrate its gross receipts for the calendar quarter were less than 50 percent of the gross receipts for the same calendar quarter in 2019. The significant decline in gross receipts ends with the calendar quarter that follows the first calendar quarter after which the business’s quarterly gross receipts are greater than 80 percent of the gross receipts for the same calendar quarter in 2019. What are Qualified Wages? Qualified wages generally mean wages as defined in section 3121(a) of the Internal Revenue Code and compensation as defined in section 3231(e) of the Code. Qualified wages also include amounts paid by an eligible employer to provide and maintain a group health plan as provided in the CARES Act, but only to the extent those amounts are excluded from employees’ gross income (per section 106(a) of the Code). How Do I Claim the Credit? For most employers, the total qualified wages and the related health insurance costs for each quarter are reported on Form 941. The credit is taken against your share of Social Security tax, and any excess is refundable. You can also retain the corresponding amount of employment tax deposited in anticipation of the credit and submit a Form 7200 to request an advance on the credit. It’s Already 2021. Can I Still Claim the Credit for 2020? If you’re unable to claim for the credit in the previous periods, you can file a Form 941-X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund) to request a refund. Generally, you must file this form within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later. Is the Credit Still Available for 2021? Yes, it is. The IRS extended the credit to wages paid after December 31, 2020 and before July 1, 2021 and modified the credit calculation. For 2021, the significant decline in gross receipts is based on an 80 percent threshold for each calendar quarter, the qualified wage limit for any calendar quarter is $10,000, and the credit is equal to 70 percent of qualified wages, allowing a maximum credit of $7,000 for each employee for the first and second quarter of the year. These limits continue to apply in the third and fourth calendar quarters in 2021, but with a separate credit limit applying to “recovery startup businesses.” What is a Recovery Startup Business? Section 3134 of the Code adds a third category of employers that are eligible for the Employee Retention Credit for the third and fourth calendar quarters of 2021: recovery startup businesses. The IRS defines a recovery startup business as one that began carrying on any trade or business after February 15, 2020, has average annual gross receipts less than $1 million for the 3-taxable-year period ending with the taxable year that precedes the calendar quarter for which the credit is determined, and is not otherwise an eligible employer (because it doesn’t qualify based on either full or partial suspension of operations or a decline in gross receipts). The Employee Retention Credit for a recovery startup business can’t exceed $50,000 for each of the third and fourth calendar quarters of 2021. How Does the Credit Interact with the PPP Loan? Even if your business received a Paycheck Protection Program (PPP) loan, you may be eligible for the Employee Retention Credit. However, qualified wages used in the credit are excluded from the payroll costs during the covered period that qualify for forgiveness under the PPP.
Covid-19 State and Local Small Business Relief Program
In light of COVID-19, relief efforts to assist businesses and individuals have been initiated by various states, especially for economic relief. FASTalks summarizes the list to help you search for initiatives to provide economic relief in your respective jurisdiction. Please note that the file is updated regularly as we continue to receive news regarding efforts to combat COVID-19 impact. For the matrix, refer to the file below. Download Matrix WE’D LOVE TO HELP. We will continuously update you regarding evolving news surrounding legislative and administrative issuances dedicated to relieve the general public of the effects of COVID-19. Stay tuned with the advisory bulletin. For immediate clarifications, please contact us at [email protected] or discuss it with your Scrubbed professional. Disclaimer The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. It is not intended to be relied upon as accounting, tax, corporate finance advisory , real estate accounting solutions , or other professional service. Please refer to your advisors for specific advice. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
9 Signs Your Non-Profit Business Might Need A Hassle-Free Accounting Partner
Accounting can be one of the more stressful aspects of running a non-profit business. In addition to dealing with the different regulations that come with this less-than-usual business model, your oversight means you’re wearing many hats. Of all aspects of your business, prioritizing accounting is crucial to keep everything running smoothly and in compliance. For some non-profits, outsourcing this essential function to a hassle-free accounting partner is the best solution. Here are nine signs that this increasingly popular approach could work for you.” 1 . You’re Doing Business in Multiple States If you’re operating your non-profit business in multiple locations, you need to keep track of the sales, taxes, and labor costs in each state. As you expand the operation of your corporate non-profit, this can be a challenge to manage. A third-party partner with experience working across multiple jurisdictions can help you keep up with the different requirements and file the right reports. 2. You’re Just Getting Started The best way to form good habits is to stick to them from the start. Setting up robust accounting processes for proper budgeting, recording, and reporting from the beginning can help you avoid running into issues later on. An experienced accounting partner for your non-profit can help you establish a firm foundation and maintain good habits as you grow. 3. You’re Not Clear on the Non-Profit Business Rules A corporate non-profit doesn’t exist to make money for shareholders. Instead, your aims and strategies prioritize serving the public interest. While there’s an abundance of information for entrepreneurs, standard non-profits, and corporations, managing the accounting aspects of a corporate non-profit requires a specialized skill set. The rules aren’t always clear, so it’s helpful to have an experienced accounting partner to guide you. 4. You Need Help with Employee Classification Employee classification refers to the designation of workers as either employees or independent contractors. As labor classification laws have become more complex, many non-profits struggle to classify their workers correctly. Since how you classify employees impacts payroll and accounting, and misclassifying can lead to IRS penalties, it’s vital you get this right. A third-party partner can help you establish correct employee classifications and maintain your records meticulously to protect your reputation as well as your finances. 5. You’ve Added a New Financial Officer A financial officer is a key, mandatory position in any structured non-profit. This person can take on multiple roles in your organization, even handling contracts or other aspects of the business. With the changing of the guard, it’s the perfect time to review and evaluate current practices and consider the value of introducing a new accounting partner to help implement best practices going forward. 6. You’re Experiencing Significant Growth As your non-profit grows, so does the complexity of your accounting needs. Growth means more focus on strategies to manage cash flow effectively, more donor contributions that must be recorded in compliance with tax regulations, and growing concern about cybersecurity and payment protection processes. Altogether, it often means too much time spent on accounting and finance tasks when you could be focusing on the mission instead, Outsourcing accounting services can help you manage the increased workload, provide access to advanced security measures and technology, and ensure your finances remain accurate and up-to-date, and ready for audit or reporting at any time. It can also support your company’s evolving needs, including specialized areas such as ESG reporting services. 7. Tax Time is a Nightmare If you find that tax time is consistently stressful, that you’re not quite sure what records are where, or that your relationship with the IRS comes with a side-helping of panic and worry, it’s time to think about a different approach. An accounting partner can provide personalized solutions for tax time and manage your other accounting and finance needs. Your accounting partner will work with you throughout the year to ensure you close the books, manage reconciliation, and hit financial reporting deadlines with ease. From there, you’re in an excellent position to provide clear and compliant communication for your donors. Working with an expert accounting firm demonstrates that you’re as focused on integrity as you are on your non-profit’s mission. 8. You Need Accounting Help, But Not a Full-Time Staff Accountant Is your corporate non-profit at that stage where you’re no longer stuffing business receipts in drawers and you need someone dedicated to accounting, but not necessarily full-time? You need a vendor who can fill in the gaps. A fractional or outsourced accounting partner allows you to pay for the services you need without having the costs associated with a full-time employee. You can quickly scale services up or down, so you get the expert support you need in a cost-effective way. The success of your non-profit means growth in every area, including all aspects of finance, accounting, and tax. You need to ensure you record and report donations, grants, and expenses in accordance with strict legal and regulatory guidelines and be able to leverage your fina nces to help you grow and look toward the future. At Scrubbed, we understand the unique needs of tax-exempt organizations. We have helped scores of non-profits set up and maintain seamless financial and accounting processes designed to meet regulatory compliance and guard your hard-earned reputation. In fact, our experience spans across industries, including specialized areas such as biotech accounting services, so you can count on us for tailored expertise no matter your sector.