The COVID-19 pandemic disrupted businesses across the globe, leading to the suspension of business operations for many companies. During this time, full-time employees were not the only ones impacted. Even some seasonal workers were impacted either by restrictions or the full suspension of business operations. Through the CARES Act, businesses were incentivized to keep seasonal employees on payroll during the 2020 and 2021 tax years.
Seasonal Employment During the Pandemic
The starting date of the Employee Retention Credit eligibility is after March 12, 2020. During this time, some businesses, such as catering companies which might be busier in the warmer months of the year, were in the midst of seasonal employment to prepare for the upcoming spring and summer. Any seasonal employees paid between March 12, 2020 and January 1, 2022 may allow businesses to become eligible for the Employee Retention Credit.
Through the CARES Act, Congress wanted to avoid drops in employment rates by incentivizing businesses to keep employees on payroll. This allowed businesses to finally support their employees while avoiding layoffs and unpaid leave. Many businesses that require seasonal employment do so because it is a busier time of year that requires additional labor. In order to qualify for the ERC tax credit, businesses will need to have paid wages to seasonal employees specifically during the 2020 or 2021 tax year.
Do Seasonal Employees Get W2?
Wages paid to seasonal employees are only eligible for the ERC tax credit if they were considered W-2 employees. 1099 employee wages are not eligible for the ERC tax credit. This means that any employees considered independent contractors, temporary workers, or self-employed workers are not eligible. Employees with a W-2 are included when filing tax through Form 941, or through the amended Form 941-X that is used to apply for the ERC tax credit.
The IRS considers seasonal employers to be any employees who work on a seasonal basis of six months or less. Because the ERC tax credit is calculated through qualified wages paid to employees, businesses will need to have proof that the wages were paid specifically to W-2 employees.
If you are concerned about the eligibility of your W-2 seasonal employees, it is best to consult with an experienced ERC consultant who can help you apply for the tax credit. They will ensure eligibility so that you avoid risking any penalties with the IRS that could result in an audit. Only apply for the ERC tax credit through an ERC consultant with certified tax experience handling applications to the IRS.
ERC Full Eligibility for Seasonal Employees
Aside from being a W-2 employee, seasonal employees need to have been paid qualified wages during the 2020 or 2021 tax year. To apply for the ERC tax credit, businesses also need to follow the same eligibility guidelines set forth by the IRS for any other qualified wages paid to full-time and part-time employees. These eligibility requirements include that the business experienced either full or partial suspension due to government regulations surrounding COVID-19, or the business must have experienced a decline over 50% in gross receipts during the specific time period during 2020 or 2021.
While some businesses may be eligible to apply for the ERC tax credit for both tax years, it is important to make sure that you double check eligibility and calculate your ERC tax credit before applying. Not all businesses are eligible for both tax years for the ERC tax credit. Eligibility requirements vary for 2020 vs. 2021.
How to Apply for the ERC Tax Credit for Seasonal Employees
With seasonal employees, businesses are still able to apply for the ERC tax credit in the same way as any other eligible full-time or part-time employees. Employers must file an amended tax return and calculate qualified wages paid to seasonal employees, alongside their other eligible employees. To ensure that you are filing properly, it is best to enlist the help of an ERC consultant with experience in filing amended tax returns and navigating applications to the IRS. With their help, you can get in line with the IRS faster while avoiding common pitfalls that could lead to an IRS audit. This also ensures that you are fully eligible and are only using qualified wages when applying.