On Thursday, April 23, as the House prepared to vote on the second coronavirus relief aid bill, ACE Workforce CEO Alan Klein hosted a webinar to help business owners better understand if they qualify for funding.
He also discussed other options available, such as the Employee Retention Credit and FICA deferral.
Read on to find out how the Employee Retention Credit or FICA deferral can help your business gain access to working capital for payroll and operational expenses if the coronavirus pandemic has adversely affected your bottom line.
Reviewing Your Options
As most business owners know by now, the first wave of funding through the Coronavirus Aid, Relief, and Economic Security (CARES) Act was depleted in less than two weeks. The second wave of funds, approved late Thursday afternoon, are anticipated to be depleted just as rapidly as the first wave. Funds were disbursed through a variety of programs, including:
1. Payroll Protection Program (PPP)
2. Economic Injury Disaster Loans (EIDL) and Emergency Grants
Business owners who applied for a loan during the first wave of funding may have found their application held up when funding ran out.
If you have completed an application, stay in close contact with your bank. As more money has just become available through new legislation, those with applications in process may receive the funding they need to stay afloat during these challenging times. We anticipate preference being given to those who have already begun the application process during the first wave of funding through the CARES Act.
Other options also exist for business owners who need to fund payroll and operational costs.
What Is The Employee Retention Credit?
The Employee Retention Credit (ERC) allows employers to claim a fully refundable tax credit equal to 50% of qualified wages the employer pays. Qualified wages include allocable qualified health plan expenses, as well as wages paid between March 12, 2020 and December 31, 2020.
The credit may be offset by withholding taxes owed to the IRS and if not enough, refundable by filing IRS form 7200. ACE Workforce advises you to speak with your tax accountant to determine the amount of ERC that is fully refundable in your specific situation.
Employers who received aid through the PPP cannot take advantage of the ERC.
Could Your Business Qualify for ERC?
Businesses must meet one of two criteria to qualify for the ERC tax credit. Employers that have fully or partially suspended operations in 2020 due to a governmental order related to coronavirus and social distancing.
Examples include hotels and restaurants that have limited their services, retail stores that have closed or have limited areas of their store open, or service providers that have suspended operations ( non-essential businesses).
If coronavirus legislation has limited commerce, travel or group meetings in your organization, you may qualify for ERC aid.
Additionally, if you have experienced a “significant decline” in gross receipts you may qualify. The government defines a significant decline as a decline of 50% or more compared to the same quarter in 2019.
You must stop taking the credit on the first day of the quarter following the quarter your gross receipts exceed 80% of your gross receipts for the same quarter in 2019.
It’s crucial to document gross receipts so you can pinpoint exactly when you no longer qualify for ERC. At that point, you can no longer pull from withholding taxes to fund payroll or operational expenses.
The ERC maxes out at $5,000 credit per employee, regardless of gross receipts.
Businesses with 100 or less employees may qualify for a credit on all wages paid. Businesses with more than 100 full-time workers may qualify for a credit on wages the employer paid only when employees were not actively engaged in providing services.
How FICA Deferrals Can Help Business Owners
If you’ve applied for a loan or grant under the CARES Act, you may be waiting for funding. FICA deferrals provide another alternative to free up working capital. Business owners may opt to defer the employer-funded social security taxes due to the IRS. Medicare taxes cannot be deferred.
If you opt to defer your portion of the FICA taxes, you must pay 50% of FICA taxes owed by the end of 2021, and the other 50% by the end of 2022. To our understanding, there are no penalties for early payment. As this is, essentially, an interest-free loan (deferment), there are also no benefits to early payment. You can utilize both the FICA deferral and the ERC. Discuss your options with your tax accountant to make the best decision for your business.
ACE Workforce Technologies is here to help you with the information, guidance, and paperwork you need if you decide to defer employer-funded social security taxes.
Combining PPP with Other Programs
If you qualified for an SBA loan through the PPP, you cannot claim the ERC. However, you can opt for FICA deferral until such point as your loan is forgiven. Once your bank announces forgiveness of your debt, you can no longer defer FICA payments.
It’s important, again, to stay in contact with both your tax accountant and your payroll company to ensure you stop FICA deferral once your loan is forgiven. You will still have until the end of 2021 and end of 2022, respectively, to make the payments. Ace will require you to sign a form for your acknowledgement of the requested FICA deferral.
Our webinar PPA, SBA Loans, and Tax Credits During Today’s Economic Climate, presented in conjunction with our friends at Tarlow & Co. goes into greater detail about SBA loans and the PPP. You can view it here.
Make sure to watch Alan Klein’s full webinar plus the accompanying slideshow presentation here with answers to your most pressing questions regarding ERC and FICA deferral during the coronavirus pandemic and email us if you have additional questions.
View Our Latest Webinar: CARES Act and Funding Options Beyond the PPP