Employers have the opportunity of a lifetime with the Employee Retention Tax Credit, but its complexities might be challenging to understand and implement. Oppuous’ cost recovery partners are here to demystify all the nuances for you.
This tax credit has been through several iterations of legislation and its restrictions have been revised multiple times since its beginnings as parts of the CARES Act and the start of the COVID-19 pandemic. The government tinkered with the requirements for eligibility, the credit’s value, and more. They also set unique regulations for start-ups and for those in the recovery industry.
When determining eligibility for this benefit, new firms can use the 2020 revenue data instead of the 2019 numbers used by existing enterprises. During the second half of 2021, businesses that qualified as recovery startups could apply for this incentive. Only enterprises starting during the recovery period could take advantage of this credit in the fourth quarter of 2021.
But don’t be intimidated or put off by the depth and complexity of this credit. Experts, such as Oppuous’ Cost Recovery Partner can explain this credit and determine if you are eligible. Read on, as we examine the ERTC requirements unique to recovery start-up enterprises, outlining the companies eligible for the refund in 2020 and 2021, and the steps they must take to claim the credit. This guide then discusses step by step this credit’s worth and the application instructions.
What is a Recovery Startup Business?
Under the American Rescue Plan Act, a company that welcomed customers during the pandemic is eligible for financial aid. If your startup meets the following requirements, it may be eligible for funding.
- You’re a business owner who opened their doors on or after February 15, 2020.
- For both the 2020 and 2021 fiscal years, your gross annual receipts didn’t top $1 million.
- To the exclusion of owner-operators and immediate family members, you have one or more W2 employees.
The ERC is ideal for recovering startup businesses. For example, a food delivery service that started operations on April 1, 2020, and employed three people. It projects a profit of $500,000 for the tax years 2020 and 2021 tax years. This business fits the criteria and qualifies.
If you launched your business in the 2nd quarter of 2021, you can’t deduct expenses from 2020 or the first two months of 2021. However, you may be eligible to claim the credit for prior quarters if you fulfil certain conditions for revenue reduction or government restriction.
You also might not qualify as a recovery startup if you bought a company already and it was up and running as of February 15, 2020. It all depends on the specifics of your situation. TO untangle all the complexities, consult with an ERC tax specialist to learn if you meet these qualifying criteria.
What is a Recovery Startup Business?
The ERTC offering for recovery startups are one of a kind. These businesses have a unique set of rules compared to their peers, who started in 2020 and the first quarter of 2021. The businesses still qualify for the special rules of the 2nd quarter of 2021. Here’s a breakdown of the special qualifying rules:
2020 ERTC Rules For Recovery Start-Ups
If a company’s quarterly revenue in 2020 is much lower than the same quarter’s revenue in 2019, the company may be eligible for the ERTC. Start-ups in the recovery industry cannot be subject to this regulation because they did not exist in 2019.
However, suppose these companies have to shut down temporarily because of COVID. In that case, they may be eligible for tax credits in 2020 if they can show they retained employees throughout the shutdown. Businesses applying for the 2020 ERTC for this purpose need not follow any additional recovery start-up rules, but can follow the standard application procedure. The process of applying is discussed in detail towards the end of this article.
2021 Q1 and Q2 ERTC Rules For Recovery Start-Ups
Starting Over in Recovery In 2021’s first and second quarters, enterprises can meet the ERTC’s eligibility requirements in two distinct methods. They can use drop-in gross receipts or a full or partial shutdown as evidence that COVID impacted their business.
Revenue projections for 2021 should ideally be compared to 2019; for enterprises that didn’t begin operations until 2020, predictions for 2020 can be used instead. If a company’s quarterly revenue is 80 percent or less of the comparative quarter’s revenue, then the company is eligible for the ERTC.
If your company had 500+ full-time employees in 2019, you would only be eligible for the ERTC in 2021 if you paid people who were not working. Recovering startup companies should base their 2020 employee count on their current workforce size for this guideline. In these three calendar quarters of 2021, enterprises eligible for staff retention credits do not need to identify themselves as recovery start-ups.
Q3 2021 ERTC Rules for Recovery Start-Up Businesses
For the first six quarters the government offered the ERTC, your recovery start-up business is subject to the same qualification standards as any other business. The differences weren’t that much of a deal, as mentioned before. However, in the third quarter of 2021, there will be new, more detailed rules for recovery startups to follow.
According to the same criteria as the first two quarters of 2021, you may be eligible for the ERTC this quarter. If your business has seen a revenue drop or was forced to shut down because of the COVID epidemic temporarily, you may be eligible for aid. For startups that don’t meet any of these criteria, the fact that they’re part of the economic recovery makes them eligible.
Recovery Start-Up Business Rules ERTC for Q4 2021
The ERTC is available only to businesses starting during the recovery period. Initially, all eligible companies could submit credit claims during this period, but the law was subsequently amended to exclude them. There is no requirement for a decline in gross receipts or a halt in operations for this quarter to qualify as a recovery start-up business; instead, qualification is based solely on meeting the definition of a recovery start-up.
Maximum ERTC Value
The credit’s maximum value is determined by the total amount of eligible wages earned and the quarter in which the credit is claimed. If you are applying as a startup for disaster relief, you must adhere to certain restrictions. For 2020, the yearly ERTC cap is set at $5,000 per worker. In 2021, each worker was eligible for a maximum quarterly credit of $7,000.
However, no matter how much in qualifying wages a business has paid during the quarter, it can only claim a total of $50,000 each quarter if it claims the tax as a recovery start-up entity.
The opportunity for a tax credit for businesses that successfully retain key employees should be well-applied. That includes making the most of the lenient regulations that apply to new enterprises in the recovery sector. Whether you qualify due to a drop in revenue, or a halt in operations for the 2021 Q3, you must also apply per the traditional rules.
ERTC Value for Recovery Start-Up Businesses
You have now learned the steps necessary for a brand-new company to claim the tax credit for retaining existing employees. It’s understandable if you still have questions about the credit’s availability and the procedure for requesting funds. No question, it is complicated and this is why you should turn to a professional who understands the ERTC’s complexities. Learn more about this credit’s parameters, upper limit, and application deadline below.
The ERTC Value
The ERTC’s worth is proportional to how much you pay your workers. For 2021, the ERTC is set at 50% of salaries up to $10,000. This translates to a maximum annual payout of $5,000 per worker. Each quarter in 2021, the credit can be worth up to $10,000, or 70% of wages that qualify. This might mean that in 2021 each worker could receive up to $28,000.
ERTC Limits for Recovery Start-Ups
Recovery startup companies can claim a quarterly maximum of $50,000 in credits. This regulation applies to the final quarter. For the last three months of the year, you can only receive a maximum of $50,000 in credits. Whether or not you can claim the full amount of the credit in the third quarter will again be determined by your eligibility.
If your company qualifies due to a decrease in gross receipts or a halt in operations, you can receive up to $7,000 per employee in hardship payments. However, if your organization qualifies as a recovery startup, you will only be eligible for a maximum quarterly credit of $50,000.
How to Apply For the ERTC
To apply for the ERTC, you must file revised payroll tax returns. To sum up, here is what must be done:
Examine the ERTC requirements for any quarter in 2020 or 2021 to see if your company is eligible for this tax credit. The next step is to locate the quarterly employer payroll tax form you previously submitted and use Form 941-X to make the necessary changes.
The ERTC Deadline
The ERTC application deadline for recovery startup firms changes from quarter to quarter. Within three years of the original filing deadline, you may file an amended tax return with the IRS to claim a refund. You have until the third anniversary of the return’s original due date to submit an amended return to be eligible for this refund.
There is an additional deadline, but it typically only applies if you have already paid your taxes late. There is an optional deadline of two years after the tax was paid to request a refund. The latter of the two dates is the one that you must meet.
Case in point: Let’s say your company paid its payroll taxes on time for the second quarter of 2020 (ending June 30, 2020). The actual date of payment is September 15, 2021, more than a year and a half later. Depending on the date you paid, the deadline to file an amended return might be either July 31, 2024, or September 15, 2024. Paying late may result in fines, but in this case, it also gives you more time to apply for the ERTC credit to which you’re entitled.
The process of submitting an ERTC claim is simple in theory. Changing previous payroll tax returns is a simple process. However, the technique is often more involved in actual use. The fact is, no consumer-grade tax software is going to be able to handle all this for you. The nuance and intricacy of this credit make it complicated, even for experienced tax professionals, so most bookkeepers and accountants need to be equipped to manage it.
Any startup looking to make the most of this rebate should consult an expert. Entire corporations have been set up to assist businesses in qualifying for this financing. These experts will not only aid in securing the highest possible credit, but also assist you in navigating the unique regulations that apply to firms in the early stages of recovery.
Apply for the ERTC with Oppous' Cost Recovery Partner
Oppuous’ cost recovery partners assist companies in obtaining this tax refund. It is one of our specialties. To ensure that our clients receive the maximum ERTC available, we help enterprises in various situations submit their applications. Take advantage of this fantastic chance. Get in touch with us if you need assistance, have further questions, or to apply right away.
After all, time is, indeed, money!
