Chances are, you already know about the Employee Retention Credit, but if you don’t, here’s a quick recap. The Employee Retention Tax Credit (also called ERC or ERTC) is a refundable tax credit to help ease the impact of Covid-19 on employers in 2020. If you qualify for the ERC, you can receive up to $5,000 per employee per quarter in 2020 and up to $7,000 per employee per quarter in 2021. Even for small businesses, those numbers add up quickly, which is why the ERC is one of the most- discussed tax incentives in recent years. If you want a quick refresher on ERC, read my previous post, “You are looking at an Employment Withholding Tax Credit opportunity.?
If you are already familiar with ERC, I would like to discuss a topic that is neglected by most organizations ERC tax credit servicesRecovery Start-Up Businesses (or RSBs). Thanks to the Infrastructure Investment and Jobs Act, the ERTC now expires on September 30, 2021 for most businesses. However, for employers who qualify as RSBs, the ERTC will be available from July 1, 2021 to December 31, 2021. So, what is RSB and how can you determine if you can claim at the third and fourth ERTC? Quarter of 2021?
Defining a recovery startup business
in Notice 2021-49An RSB provides clarity on the IRS’s definition of a recovery startup business by outlining that an employer must:
- — have started carrying on their trade or business after February 15, 2020.
- – Earned average annual gross receipts of less than $1 million for the three tax years prior to 2021.
- – Ineligibility for ERTC due to suspended works or total receipt rejection
As a recovery startup business, you are eligible to receive an ERC of up to $50,000 in the third and fourth quarters of 2021. The RSB requirements are relatively simple, but there are some questions that may arise when checking yours. Eligibility.
If I start in 2020, how do I calculate three years of tax receipts?
Obviously, if an RSB begins on or after February 15, 2020 and has a calendar-based year end, the “triennial period” for 2021 will only have gross receipts between February 16, 2020 for the 2020 tax year. and December 31, 2020. So, if your RSB started operations on July 1, 2020 and had gross receipts of $254,000 by December 31, 2020, you can calculate your gross receipts as follows.
- – $254,000/6 months = $42,333 average per month
- – 42,333 x 12 = 508,000 dollars
- – $508,000 is the average gross receipts for the year.
In the above example, we divided the total receipts by the time period of the business (6 months), then multiplied the result by 12 to annualize it. Let me put this formula for you:
- Number 1: Gross Receipts in Business for the Year/Period = Total Gross Receipts Monthly Avg
- Number 2: Gross Receipts Monthly Average x 12 Months = Annual Gross Receipts Average
- Number 3: The result is the average amount of total receipts for the year.
“Not otherwise eligible” rule for recovery startup businesses
It’s important to note that a recovery startup business may not be eligible for the ERC due to a government-mandated shutdown or reduced gross receipts in 2020 or 2021. This safeguard is in place to prevent double claiming using the ERC. Same salary.
However, this should not be a problem as the Infrastructure Investment and Jobs Act eliminated the eligibility of non-RSB businesses for the ERC in the fourth quarter of 2021. Suspension test Or Reduced income test.
What is the maximum amount RSBs can get from ERC?
If you qualify as an RSB, you can receive up to $7,000 per employee for the third and fourth quarters of 2021, up to a maximum of $50,000 per employee.
What about a business acquisition or merger?
Although there is no specific guidance from the IRS regarding acquisitions, mergers or transfers, Tax code It states that an acquired business is counted from the date of purchase. An acquisition or similar event may qualify for the ERC as an RSB if the event occurred after February 15, 2020 and all other RSB requirements are met. However, RSB eligibility may vary from company to company and ultimately, eligibility should be considered final only if your situation is assessed by a tax expert and verified with supporting documents.
Are you ready to claim ERTC as an RSB?
If you are interested in claiming the ERC tax credit as an RSB, I highly recommend that you discuss your situation with a tax professional. There are many considerations for the ERC that require due diligence and extensive knowledge of tax laws and regulations, especially when determining RSB eligibility. However, whether you fall under RSB eligibility or general ERC eligibility, I highly recommend it. Checking your ERC eligibility Soon – ERC will start to expire in 2023.
Cassidy Jackovicas, CPA, is president and CEO. MBS Accounting Corporation In downtown Fresno.