Question: What is the Employee Retention Tax Credit?
Answer: The Employee Retention Tax Credit was created to incentivize and provide a credit to employers that retained their employees on payroll even if they are not working during a covered period due to COVID-19. The Employee Retention Tax Credit is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees. For 2020, the credit is 50% of up to a maximum of $10,000 in qualified wages and costs for employee health insurance (including dental) for each full-time employee beginning March 13 and ending Dec. 31, 2020. Therefore, the maximum tax credit you can receive per employee is $5,000. For 2021, the credit is up to 70% of up to $10,000 in qualified wages and employee health insurance (including dental) costs per full-time employee for each calendar quarter beginning Jan. 1 and ending Dec. 31. Therefore, the maximum amount you can receive is $7,000 per quarter per employee.
Q: What businesses are eligible for the Employee Retention Tax Credit?
A: For 2020, eligible businesses are those that were ordered to fully or partially shut down due to orders from an appropriate government authority due to COVID-19 or that experienced more than 50% in lost revenue in comparison with the same period in 2019. This is based on calendar quarter comparison between 2020 and 2019. For 2021, eligible businesses are those that were ordered to fully or partially shut down to COVID-19 or that experienced more than 20% in lost revenue in comparison with the same quarter in 2019.
Q: Can I take advantage of the Employee Retention Tax Credit even if I took out a Paycheck Protection Program loan?
A: Yes. Due to the advocacy efforts of ADA and numerous other stakeholders, Congress passed legislation that allows PPP borrowers to also take advantage of the credit. This became law in December 2020.
Q: What is the most important piece of advice regarding the Employee Retention Tax Credit?
A: Being able to utilize the Employee Retention Tax Credit and ensuring you receive the full benefit you may be eligible for is highly individualized, especially since “appropriate government authority” applies to state and local government orders. It is important that you work with your financial advisor or accountant to determine if and how much you can receive from the credit. This is especially important if you took out a Paycheck Protection Program loan given that while Congress did expand eligibility for Employee Retention Tax Credit to PPP borrowers, they also put guardrails in place to ensure that taking advantage of both programs does not result in any “double-dipping.” Again, given the complexities of these two programs, it is key that dental practices have sound financial advisor support in order to fully maximize the tax credit. If you filed your 2020 tax return early and later determine you qualify for the credit, you will need to work with your financial advisor or accountant to potentially file an amended return. If you received a PPP first draw loan, we also recommend not rushing to file for forgiveness. During this busy tax season, which is exponentially more difficult this year, it is best to give your financial adviser or accountant time to review your eligibility and ability to fully utilize the Employee Retention Tax Credit and ensure full forgiveness of PPP as it pertains to the interplay between both programs.
For more information on the Employee Retention Tax Credit, the IRS has posted an FAQ on its website.
Note: The information in this piece is not intended to be, nor should it be construed as, tax, accounting or legal advice. Readers are urged to consult a qualified professional when seeking such advice. The ADA makes no endorsement of the above advice, nor of any website or organization mentioned in the above piece.