New law extends COVID tax credit for employers who keep workers on payroll

The Internal Revenue Service urges employers to take advantage of the newly-extended employee retention credit, designed to make it easier for businesses that, despite challenges posed by COVID-19, choose to keep their employees on the payroll.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted Dec. 27, 2020, made a number of changes to the employee retention tax credits previously made available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including modifying and extending the Employee Retention Credit (ERC), for six months through June 30, 2021. Several of the changes apply only to 2021, while others apply to both 2020 and 2021.

As a result of the new legislation, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after Dec. 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.

Employers can access the ERC for the 1st and 2nd quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers (i.e., employers with an average of 500 or fewer full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing deposits. In 2021, advances are not available for employers larger than this.

Effective Jan. 1, 2021, employers are eligible if they operate a trade or business during Jan. 1, 2021, through June 30, 2021, and experience either:

  1. A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
  2. A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).

Employers that did not exist in 2019 can use the corresponding quarter in 2020 to measure the decline in their gross receipts. In addition, for the first and second calendar quarters in 2021, employers may elect in a manner provided in future IRS guidance to measure the decline in their gross receipts using the immediately preceding calendar quarter (i.e., the fourth calendar quarter of 2020 and first calendar quarter of 2021, respectively) compared to the same calendar quarter in 2019.

In addition, effective Jan. 1, 2021, the definition of qualified wages was changed to provide:

  • For an employer that averaged more than 500 full-time employees in 2019, qualified wages are generally those wages paid to employees that are not providing services because operations were fully or partially suspended or due to the decline in gross receipts. 
  • For an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services.  

Retroactive to the Mar. 27, 2020, enactment of the CARES Act, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.

If you have any questions, reach out to the Crosslin tax team at (615) 320-5500.  We are here to help! 

Questions about PPP Expense Deductions?

One of the most disappointing developments in the Paycheck Protection Program loan guidance was related to the non-deductibility of the expenses paid for by the forgiven loans.  Many organizations, including the American Institute of CPAs, have been lobbying to change that result.  Recent developments have led to higher enthusiasm that a deduction may be provided for by Congress.   Stay tuned for more information from Crosslin as this unfolds. As always, contact your Crosslin team member with any questions. We are here to help!

Businesses can file cash transaction reports electronically and in batches

Businesses that receive cash transactions of more than $10,000 must report these payments to the IRS – it’s the law. Now businesses can batch file their cash reports; this is especially helpful for those required to file many forms.

According to the IRS, here are some key things to know about reporting these payments.

What’s considered cash
Cash includes coins and currency of the United States or any foreign country. For certain transactions, it’s also a cashier’s check, bank draft, traveler’s check or money order with a face amount of $10,000 or less.

Businesses must report cash of more than $10,000 that they receive:

  • In one lump sum
  • In two or more related payments within 24 hours
  • As part of a single transaction within 12 months
  • As part of two or more related transactions within 12 months

Reporting these payments
Taxpayers report cash payments by filing Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

Filing electronically is encouraged. It’s free, secure and a more convenient and cost-effective way to meet the reporting deadline. Filers will receive an electronic acknowledgement of each form they file.

When to file
Form 8300 must be filed within 15 days after the date the cash is received. If a business receives payments toward a single transaction or two or more related transactions, they should file when the total amount paid exceeds $10,000. 

Contact the Crosslin tax team at (615) 320-5500 with any questions you may have! 

Guidance for Deferring Social Security Tax Withholding

Recently, the President issued a memorandum directing the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of certain payroll tax obligations. Accordingly, the Secretary has determined that employers that are required to withhold and pay the employee share of social security tax or the railroad retirement tax equivalent are affected by the COVID-19 emergency for purposes of the relief described in the memorandum. 

Therefore, the due date for the withholding and payment of the social security tax or the railroad retirement tax equivalent on applicable wages is postponed until the period beginning on January 1, 2021 and ending on April 30, 2021.

Applicable Wages

Applicable wages means wages or compensation paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.

The determination of applicable wages is made on a pay period-by-pay period basis. If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered applicable wages for the pay period, and the relief applies to those wages or that compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods.

Payment of Deferred Applicable Taxes

An employer must ratably withhold and pay the total applicable taxes that the employer deferred under the Memorandum from wages and compensation paid between January 1, 2021 and April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid taxes. If necessary, the employer may make arrangements to otherwise collect the total taxes from the employee.

As always, contact the Crosslin tax team at (615) 320-5500 if you have any questions on the deferral of social security tax or the railroad retirement tax equivalents.