Tax Tips Logo ImageISSUE:

The “Taxpayer Certainty and Disaster Tax Relief Act of 2020 – as part of the Consolidated Appropriations Action, 2021 (CAA) – (enacted December 27, 2020) amended and extended the Employee Retention Credit (ERC) that was included in the CARES Act.

 

SITUATION:

Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

The Accounting Team at DCC asked us to provide them with a brief description of the ERC and the changes made with the new tax legislation.  Here goes…

First, the Employee Retention Credit (ERC), is something you should research closely and be alert for forthcoming guidance.  Previously, institutions receiving a “PPP1” loan could not participate in the ERC program under the CARES Act.  Now, CAA allows this – and expands the credit.  We look forward to guidance on retroactive (amending Form 941) filings and other aspects of this broadened opportunity.

This credit has been expanded and extended through June 30, 2021.  In addition, the CAA opened up the opportunity for taking advantage of this credit to those institutions who received a PPP loan.

The CAA has increased the ERC credit from 50% to 70% for 2021 calendar quarters.  And, rather than the $10,000 per employee payroll limit for all of 2020, the limitation is changed to $10,000 per employee per quarter.

The CARES Act instituted the Employee Retention Credit as a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021 (the CAA extended this through June 30, 2021). The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. (Underline added.)

Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:

  • Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  • Experience a significant decline in gross receipts during the calendar quarter.

Although – as of this writing – the IRS had not updated their very informative ERC webpage to reflect the new changes, you can find out more about the ERC at:

FAQs: Employee Retention Credit under the CARES Act | Internal Revenue Service (irs.gov)

RULES:                                                                        .

From IRS Webpage “FAQs: Employee Retention Credit under the CARES Act:

Alert

Note that the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, amended and extended the employee retention credit (and the availability of certain advance payments of the tax credits) under section 2301 of the CARES Act. These FAQs do not currently reflect the changes made by the Taxpayer Certainty and Disaster Tax Relief Act of 2020; however, please continue to check back on this page for any updates related to the change in law.

 

BOTTOM LINE:

  • The new tax legislation enacted December 27, 2020, commonly referred to as the CAA, has expanded the opportunities of the Employee Retention Credit.
  • Previously, if your institution received a PPP loan/grant, you were disqualified from utilizing the ERC.  That has changed, retroactively.
  • To qualify to use the ERC, institutions must show that they 1) Fully or partially suspended operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or 2) Experienced a significant decline in gross receipts during the calendar quarter.
  • Further guidance will be forthcoming regarding the changes, extensions, and expansions of the ERC (likely including how to amend Forms 941 to potentially retroactively utilize the credits).

 

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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