As part of the Consolidated Appropriations Act of 2021, which was signed on December 27, 2020, Section 206 of the Taxpayer Certainty and Disaster Tax Relief Act permits an eligible employer to take the Employee Retention Credit (ERC), even if the employer has received a Paycheck Protection Program (PPP) loan for 2020. The ERC can be taken retroactively, for qualifying wages paid after March 12, 2020.
The IRS issued guidance for a "limited 4th quarter procedure" which allowed businesses to report qualifying ERC wages for 2nd, 3rd and 4th quarter on the original 4th quarter 941. This guidance was issued on January 22nd and the Q4 Form 941 was due by January 31 which made this logistically challenging for most businesses. Consequently, employers will need to file a 941-x for Q2, Q3 and / or Q4 depending on when their qualified wages were paid. Employers may report qualifying wages from March 12 through June 30 on the Q2 941-x.
Highlights of the ERTC changes are summarized below:
To receive the credit faster, employers were able to request advanced credits by filing Form 7200 . Businesses who chose to use Form 7200 must notify their payroll provider so it can be reconciled with the original Form 941. Failure to do so would result in an IRS advance payment AND application of the same credit on the amended return, which would result in underpayments of tax, and significant IRS penalties and interest. The deadline to file the Form 7200 for most businesses was the earlier of February 1, 2021 or the date they filed the Form 941 for Q4. Form 7200 should not be filed in advance of the 941-x.
Read more about the background of the Employee Retention Credit and Consolidated Appropriations Act of 2021 on our blog.
To better understand your options or initiate this process for 2020, reach out to PaySteady at 703-672-1225 or payroll@paysteady.com and one of our payroll specialists will be happy to help!
Employers should consult with appropriate legal and tax advisors to determine whether the organization is eligible for the ERC, noting the different rules that apply for 2020 and 2021.