When COVID-19 hit and offices closed, Congress mobilized and passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Included with an assortment of credits and other provisions was the Employee Retention Credit (ERC) which allowed for a refundable tax credit of up to $5,000 per employee for organizations that continued to pay employees who were no longer providing services. The ERC is not a loan or a grant, but a federally legislated payroll tax credit, now available as a refund, designed to help organizations that were able to retain employees during the pandemic.
Although a large number of businesses in many industries were obviously hit hard by COVID 19, government contractors were especially impacted as your clients, federal, state and local government agencies, were among the quickest to close their doors. Even if your offices were not closed immediately, the inability of your employees to perform their services on behalf of clients can trigger the ability to file for and receive refunds. In some cases, government contractors continued to receive payments from their clients designed to offset COVID related losses due to work stoppage. Receipt of such payments could impact your ability to qualify for the ERC and should also be considered.
The general specifics of the ERC as originally enacted are:
As the pandemic continued it became obvious that the CARES Act/ERC program, designed to sunset December 31, 2020, needed to be renewed and perhaps enhanced. Congress passed additional legislation in 2021 which extended the duration of the ERC through December 31, , 2021 and made several other changes that significantly enhance the opportunities for credits/refunds in both the current and prior year. Some of those changes and enhancements include:
As a result of the 2021 legislative changes there are both enhanced credits available for 2021, and an expanded ability to receive refunds for 2020. Many employers who would not have qualified at the time, now may have refunds available to them. So, what to do?
Finally, if you don’t have the bandwidth or internal expertise to determine if you qualify and to quantify the refund, get some assistance. Depending on whether you are a small or large employer, the work to analyze applicability can vary in complexity, as does the process to capture the refunds which might be available. The amounts at stake could be a game-changer for some companies, providing a lifeline as, hopefully, the pandemic recedes and the worries about shutdowns by governmental order, furloughs and declines in gross revenue are put behind us.
If you have any questions about the information above, please contact your E. Cohen advisor.
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