Category: Anything

How to Claim the Employee Retention Credit… Retroactively!

The Employee Retention Credit (ERC) is an $80 billion dollars tax savings program. Included in the CARES Act, the ERC offered tax credits to encourage employers to retain employees at the height of the COVID-19 pandemic in March 2020. The driving principle for Congressional adoption of the incentive was to help pandemic-impaired businesses and tax-exempts to retain jobs and trigger job creation.

Regrettably, many of those employer benefit candidates have ignored participation in the program. That triggered a major loss to willing workers who have been displaced or are about to be. Likewise, employers suffer when they are unable to maintain their pre-pandemic payroll which further impairs their success in recovering from the financial ravages of C-19 and prevail as viable enterprises.

Many employers were and are confused as to qualification requirements and application procedures. As noted above, the ERC was included as a provision in the CARES Act. Added fuel for the confusion is the Paycheck Protection Program (PPP) which was enacted in that legislation as well. The unintended consequence for a significant number of employers was and is the belief that it was an either/or choice … ERC or PPP.

Note: Employers who received a PPP) loan are eligible to claim the ERC. However, there are restrictions … e.g., the employer cannot claim the same expenses for both programs.

A second area of qualification-confusion surfaced. Many business owners and tax-exempt managers incorrectly interpreted the rules. The first misconception was that to qualify an enterprise must have suffered a 50 percent reduction in revenues … not so. There are two alternate tests to qualify:

1. a revenue test, or
2. demonstration that your operating entity was significantly and negatively impacted by government order, e.g., a partial or full shutdown due to a government order at the federal, state, municipality, county or other local level authority.

With this knowledge of qualification criteria, hundreds of businesses and tax-exempt organizations have applied for and been approved for ERC assistance under one or another of the above tests. Notably, for employers that have not yet applied, the ERC can be claimed for three years after the filing date of the original payroll returns.

For employers with 500 or fewer employees,
this presents an opportunity to retroactively claim these credits.

Takeaways
Employers who qualify and have not yet claimed their ERC are urged to adopt a sense of urgency to do so. The 3-year window after the filing date of the original payroll returns that ERC can be claimed is on the horizon.

Of considerable financial significance, the 2020 credit can be as much as $5,000 per employee … the 2021 credit up to $21,000 per employee.

 Give Pearson & Co a call or drop an email to determine if you qualify
… and if so, how to submit a claim.

Employee or Independent Contractor?

Legal and regulatory debates continue to rage at both the state and federal levels, the topic … what workers may appropriately be deemed “employees” and which class of workers may be classified as “independent contractors”?

A worker’s classification has real world financial and other consequences for both the individual worker and the company utilizing their services. Independent contractors are not eligible for state or federal minimum wages. Additionally, they are not entitled to overtime pay, workers compensation coverage, unemployment insurance, or benefits. Effectively, independent contractors do not enjoy the protections of state or federal workplace law as do employees.

Employers are often tempted to seek grounds to classify workers as independent contractors rather than employees. Doing so relieves the employer of paying its share of employment taxes …  plus avoiding withholding and paying income, Social Security and Medicare taxes.

Employers are cautioned to be diligent in their research before classifying workers as independent contractors.

Misclassifying a worker may subject the business to significant financial penalties.

A prudent place to seek guidance is to review how the IRS determines whether a worker is an independent contractor or an employee. There are 3 relational categories to consider.

• Behavioral control − Does the company control or have the right to control what the worker does and how the worker does the job?
• Financial control − Does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.
• Relationship of the parties − Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business

With the above as a guide, an employee is generally considered anyone who performs services under circumstances that the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker’s services are performed.

In contrast, independent contractors are typically people in an independent trade, business or profession in which they offer their services to the public. Workers often classified as independent contractors include truck drivers, home health workers, auto mechanics, carpenters, plumbers, painters, roofers, drywall installers, among others.

For more on how the above applies to your specific circumstances,
be sure to give Pearson & Co a call or drop an email. We’ll respond immediately.