Payroll Tax Relief (PTR) is a provision in the CARES Act which allows employers to postpone payroll taxes for certain periods during a coronavirus pandemic, defer them, or receive tax breaks from certain businesses against payroll tax liability. Some businesses may even receive credits against their payroll taxes through PTR.
These programs can be complex and employers should enlist the aid of both advisors and third-party providers when determining eligibility and accurately calculating amounts.
Employee Retention Credit (ERC)
The Employee Retention Credit (ERC) is a refundable tax credit introduced as part of the CARES Act and extended by the American Rescue Plan Act, created to compensate businesses that had employees on payroll during COVID-19 pandemic by compensating them for lost revenues. ERC may be available to companies who fall within certain criteria – for instance being affected by government orders to reduce capacity or experiencing significant decrease in gross receipts.
The ERC offers many advantages to small and mid-sized business owners, including helping reduce payroll costs overall. The credit can be used to cover payroll expenses or offset an employer’s share of payroll taxes for significant savings for any given business. In addition, it can encourage employees to stay at work during difficult times by helping encourage payroll taxes payments that have already been withheld during COVID-19 pandemic outbreak. Furthermore, any retroactive claims for ERC credits made will result in refunds by IRS from withheld taxes taken during pandemic period when claimed.
To qualify for ERC funding, a business must have been affected by government orders that restrict capacity or limit public gatherings, resulting in gross receipts decreasing by 20 percent or more for its applicable quarter in 2021 compared with that same quarter of 2019. Furthermore, significant operating expenses were incurred at that same time period (for instance relocating supplies or renting space for employees who couldn’t come to work).
ERC eligibility restrictions do include some restrictions on how much money can be claimed; it only covers up to $10,000 of wages and health-plan expenses paid per employee during their credit-generating period. It’s crucial not to over claim, which could incur expensive penalties; to do so safely it is advisable that you seek professional help like Experian Employer Services’ services who will calculate credits properly while complying with IRS rules.
Employee Retention Credit can be an invaluable tool for small and midsize businesses during the COVID-19 pandemic, but it is crucial that businesses understand its requirements and how it affects payroll taxes and wages. By being aware of these vital details, they can better equip themselves for any foreseeable financial challenges in their business.
Employee Retention Tax Credit (ERTC)
The Employee Retention Tax Credit (ERTC) is a federal payroll tax credit designed to assist businesses in mitigating federal employment taxes. It applies to the wages of full-time employees that qualify, in addition to their health insurance costs. Businesses seeking this relief must file an amended Form 941-X in order to claim it; unlike other forms of pandemic relief relief such as loan guarantees or grants, companies do not need to repay anything back for this benefit.
The Employee Retention Tax Credit was first instituted under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES), to encourage business owners to retain employees during COVID-19 pandemic. Eligible employers must prove that operations were suspended for more than half of each quarter during COVID-19 pandemic; also their gross receipts fell below 50 percent of what they were in a prior quarter. It has since been expanded through American Rescue Plan Act 2021 so more businesses may claim this credit.
For an Enterprise Risk Transfer Credit (ERTC), companies must demonstrate they were forced to cease operations due to government restrictions during the COVID-19 pandemic, with gross receipts significantly below what they were in prior quarters in 2020. Furthermore, multiple quarters may qualify if revenue reduction occurred throughout a season.
In August 2021, the IRS released Revenue Procedure 2021-33 as a protective measure for eligible employers who utilize the Earned Retention Tax Credit (ERTC) to lower payroll taxes. Under this RP, qualified employers may exclude amounts related to PPP loan forgiveness and grants from the Restaurant Revitalization Fund or Shuttered Venue Operators Grant from gross receipts when calculating eligibility for the ERTC.
If you want to take advantage of the ERTC, it is advisable to speak to a tax and payroll professional first. Due to its complex calculations and requirements, your professional will be able to answer any queries about it as well as ensure it is filed accurately.
Payroll Tax Deferral (PTD)
After President Donald Trump issued an executive order to stop withholding of payroll taxes that support Social Security, few companies or employees have taken part in his plan to temporarily defer these payments for four months before receiving some or all of it back in their paychecks – perhaps this makes workers hesitate? “Workers who receive pay bump from deferred taxes should remember that it’s really just a loan,” says Janet Holtzblatt of Urban-Brookings Tax Policy Center. “You will likely see the money returned around Christmas.”
Deferral applies only to Social Security payroll taxes and Medicare withholding; employers remain responsible for depositing those amounts with the IRS. Employers that deferred Social Security taxes must make a payment for the employer portion by April 30th 2021, while continuing deferment can extend into 2022 with repayment due no later than September 30th of that year.
If a taxpayer wishes to continue with deferral, they should consider their overall method of accounting-cash or accrual-to determine when their deduction must be claimed. Employers that use the recurring-item exception typically retain their 2020 deduction if they switch to accrual basis and meet certain terms and conditions set out by Revenue Procedure 2015-13.
At times it may be necessary for employees to reduce their withholding to zero. This may be necessary when earning over $1 million or receiving benefits subject to withholding such as federal retirement plan contributions and mortgage interest deductions.
As with all tax issues, we advise our clients to seek professional guidance before making decisions that could radically alter their finances. And as always, GBQ representatives are on hand to answer any queries in this process. Get in touch today for assistance from one of them!
Payroll Tax Credit (PTC)
The PTC allows taxpayers to offset payroll taxes based on R&D expenditures made during a tax year and file quarterly federal payroll tax returns. It is particularly helpful for start-up companies, and one of only several credits that can be claimed more than once every five years.
The Affordable Care Act’s (ACA) Refundable Advance Premium Tax Credit (APTC) helps lower the cost of Marketplace health insurance coverage for families with modest incomes. This tax credit was designed to encourage these households and individuals with moderate incomes to purchase coverage on the Marketplace and reduce uninsured rates in the US.
To calculate eligibility and amount for the American Parent Tax Credit (APTC), the IRS compares an individual’s modified adjusted gross income (MAGI) with the standard deduction (105% of FPL for that tax year). MAGI includes all taxable items plus wages, salaries, tips and other forms of compensation as well as compensation received directly or through family. When calculating an APTC award for families it also considers all family members including spouse and children who live together under one roof as MAGI is also factored into its calculation.
However, MAGI and APTC do not always align, leaving some claimants overpaid APTC payments they must repay when filing their federal income tax returns. To address these problems, GAO conducted an evaluation of CMS and IRS’ advance APTC payment systems; its report concluded that both had established key control activities to prevent improper advance APTC payments including verifying individuals eligibility.
The American Rescue Plan Act of 2021 temporarily expands APTC income eligibility thresholds through 2025. This expansion creates increased ESR penalties for ALEs as more low-income employees seek coverage in the marketplace using this subsidy to offset out-of-pocket premium costs. Furthermore, this expansion increases their chances of overpayment and must reimburse these amounts when filing their tax returns.