The Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020) and the Coronavirus Response and Consolidated Appropriations Act (2021) provided fast and direct economic assistance for American workers, families, small businesses, and industries.
The CARES Act implemented a variety of programs to address issues related to the onset of the COVID-19 pandemic.
The Consolidated Appropriations Act continued many of these programs by adding new phases, new allocations, and new guidance to address issues related to the continuation of the COVID-19 pandemic.
The CARES Act was passed by Congress on March 25, 2020 and signed into law on March 27, 2020.
The Consolidated Appropriations Act (2021) was passed by Congress on December 21, 2020 and signed into law on December 27, 2020.
- U.S. DEPARTMENT OF THE TREASURY
https://home.treasury.gov/policy-issues/coronavirus/about-the-cares-act
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More On the ERC
As long as the statute of limitations remains open, the employee retention credit can be claimed on amended payroll tax returns. This means you can still claim the ERC three years from the date of initial tax return filing.
Gross receipts test of the government mandate test to determine eligibility?
For the 2020 ERC, most companies are qualifying as an eligible employer under the Government Mandate Test. For the 2021 ERCs, most companies are qualifying as an eligible employer under the Gross Receipts Test.
What is considered gross receipts for ERC?
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For taxable entities:
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Total sales (net of returns and allowances) and all amounts received for services.
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Includes any income from investments:
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Dividends
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Interest
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Rents
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Royalties and annuities, regardless of whether those amounts are derived in the ordinary course of the taxpayer’s trade or business
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Reduced by the taxpayer’s adjusted basis in certain property used in a trade or business or capital assets sold.
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Tax accounting method for income recognition applies
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For non-taxable entities:
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Gross Receipts means gross receipts of the taxable year and generally includes all receipts.
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Tax accounting method for income recognition applies.
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Includes proceeds from investments and grants.
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Not Reduced by the taxpayer’s adjusted basis in certain property used in a trade or business or capital assets sold.
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Is the ERC considered income?
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No. Instead, the employer must reduce deductions for wages on their income tax return for the tax year in which they are an eligible employer for ERC purposes.
Does the ERC have to be repaid?
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No. The Employee Retention Credit is a fully refundable tax credit that eligible employers claim against certain employment taxes. It is not a loan and does not have to be paid back. For most taxpayers, the refundable credit is in excess of the payroll taxes paid in a credit-generating period.
How is the ERC applied for?
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Going forward, the only way to apply for the ERC is to file an amended Form 941X (Quarterly Federal Payroll Tax Return) for the quarters during which the company was an eligible employer.
How long does it take for the IRS to provide a refund after filing an amended form 941x?
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It is taking as little as 16 weeks (4 months) but could take as long as approximately 39 weeks (nine months) to receive a refund from the IRS after filing an amended Forms 941X.
Can an employer get both the ERC and PPP?
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Yes. While an employer may not include wages funded by a PPP loan in the ERC calculation, PPP funds only apply to eight to ten weeks of wage expenses. The ERC eligibility periods are longer. PPP loans can also fund non-wage expenses. For ERC purposes, it is most important to develop work papers that allocate the PPP funding across the entire 24 week Covered Period. PPP funding may be allocated to wages that would not generate any ERC (e.g., to owners of the company or to wages in excess of $10,000 in one of the four ERC credit-generating periods).
What documentation is required?
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ANY PPP LOAN DOCUMENTATION INCLUDING FORGIVENESS INFORMATION
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FORMS RELATIVE TO ANY ADDITIONAL COVID-19 GRANTS OR CREDITS
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CORPORATE TAX RETURNS
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2019
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2020
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2021
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MONTHLY/QUARTERLY RECORD OF GROSS SALES/RECEIPTS
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2019 (1ST, 2ND, 3RD, AND 4TH)
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2020 (1ST, 2ND, 3RD, AND 4TH)
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2021 (1ST, 2ND, 3RD, AND 4TH)
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QUARTERLY PAYROLL REPORTS (BOTH FEDERAL AND STATE)
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2020 (1ST, 2ND, 3RD, AND 4TH)
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2021 (1ST, 2ND, 3RD, AND 4TH)
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W-2’S
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2020
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2021
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