In 2021, the Department of Treasury and the IRS issued a safe harbor to broaden employers’ eligibility for the Employee Retention Credit (ERC). This safe harbor allowed employers to exclude support from other coronavirus economic relief programs from their gross receipts to determine qualification for the ERC.
Revenue Procedure 2021-23 allows employers to exclude the following items from gross receipts:
- Forgiveness funds received through the Paycheck Protection Program (PPP) Loan
- Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act
- Restaurant Revitalization Grants under the American Rescue Plan Act of 2021
Why is this important?
To be eligible for the ERC, your business must have had a decline in gross receipts of more than 50% when comparing any quarter in 2020 to the same quarter in 2019. Or a 20% decline for 2021 compared to the same quarter in 2019.
Is inclusion into the safe harbor program automatic?
Adoption of the program is completely voluntary. But if employers elect to apply it, they must do so consistently by:
- Excluding the amount from its gross receipts for each calendar quarter in which gross receipts are relevant to determining ERC claim eligibility
- Applying the safe harbor to all employers treated as a single employer under the ERC aggregation rules
What’s the next step?
If you now qualify for the ERC under the gross receipts test, you will need to amend your tax returns. Amending a return is fairly common; the IRS frequently reviews amended returns without any alarms. Though, we encourage you act quickly because time is running out to claim your credit. After all, the ERC is worth up to $5,000 per employee for all of 2020 and up to $21,000 per employee for 2021. Plus, it’s fully refundable, which means you’ll get the money even if you don’t owe any taxes.
Let Miami CFO help you coordinate and assess your eligibility for the ERC to ensure you don’t miss out on this valuable financial benefit.