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!

Reconstruct Records Lost in a Natural Disaster

Between tornadoes, floods, and hurricanes for some of our southern and eastern neighbors, we have witnessed our fair share of national disasters over the last several years.  Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps from the IRS that can help people reconstruct important records.

Tax records

  • Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app.
  • Order transcripts by calling 800-908-9946 and following the prompts. 

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

  • To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
  • Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
  • For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
  • When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
  • Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

If you have any questions, please call our Crosslin tax team at (615) 320-5500.  We are always here to help. 

The Effect of COVID-19 on Valuations

It is no surprise that the COVID-19 pandemic has created tremendous uncertainty regarding the current value of businesses.  Earlier this year, our country witnessed major stock indexes lose more than 20 percent of their value, the World Health Organization declare a worldwide pandemic, and the President of the United States declare a national emergency.  In the months that have followed, our economy and business community have weathered extremely tumultuous times.  All these factors would make any business owner question the value of a business.  

It is important that business valuations account for known or knowable circumstance, as of the date of your valuation, that could affect its value.  Whether you are a business owner in the process of estate and gift planning, considering a sale or a merger, going through a divorce, or an investor, the global pandemic is most likely going to have a significant impact on your business’ future. 

Important considerations during this time include: 

  • Has your company received any stimulus? 
  • What was the impact on cash flow and will it continue?  Are there any additional risks? 
  • Have you had to decrease your workforce?  Will you be rebuilding your workforce? 
  • Are you confident in your management team and are strong plans in place?
  • Is your company experiencing a material change in the way it does business due to COVID?

Having a knowledgeable expert when it comes to these sensitive topics is crucial.  Let Crosslin consult with you how these events may impact your business or investment values and be a critical part of your advisory team.

Please contact a member of the Crosslin Forensic Valuation Service Team by e-mailing here or calling (615) 320-5500 with any questions you may have.  As always, we appreciate your business and are always here to help!