ERTC FAQs

Q&A ON EMPLOYEE RETENTION CREDIT

Why am I just hearing about the Employee Retention Tax Credit?

There was a change to the CARES act on December 27th 2020 that now allows businesses who received a PPP loan to now qualify to receive these tax credits on wages paid out during the same time.

How do I qualify for the retroactive 2020 credit?

Businesses who paid under 100 employees (full time equivalents) in 2019

AND If during COVID the company had partial or total business closure due to federal, state or local COVID order

OR more than 50% reduced gross revenue as compared to the same quarter in 2019.

Businesses then remain eligible until the end of the first quarter where their revenues go back up over 80% compared to the same quarter in 2019.

 

(NOTE: New businesses who do not have 2019 revenue can compare to prior quarters.)

How do I qualify for the 2021 ERTC credit?

Businesses who paid under 500 employees (full time equivalents) in 2019

AND If during COVID the company had partial or total business closure due to federal, state or local COVID order

OR more than 20% reduced gross revenue as compared to the same quarter in 2019.

 

(NOTE: You do compare 2021 revenue to 2019 revenue still. Think of it as comparing pre-covid numbers to during-covid numbers.)

Will this affect my PPP Loan forgiveness?

No, the PPP Loan amount is deducted from the ERTC calculations and will be kept separate as required.

How is the ERTC calculated retroactively for 2020?

Payroll Vault will calculate your credit based upon gross wages paid during your shut down/lost revenue times. The PPP Loan amount is deducted from your qualifying wages. The remaining wages are then capped out at $10,000 per employee. The credited amount is divided in half, making the credit amount a maximum of $5,000 per employee for 2020.

How is the ERTC calculated for 2021?

Payroll Vault will calculate your credit based upon gross wages paid during your shut down/lost revenue times. The PPP Loan amount is deducted from your qualifying wages. The remaining wages are then capped out at $10,000 per employee. The credited amount is multiplied by 70% making the credit amount a maximum of $7,000 per employee PER QUARTER for 2021.

Why am I getting this credit?

This is a government refund/reward for keeping your employees on payroll during COVID down time (full/partial shutdown or lost revenue).

Will we need to pay taxes on this refund?

Yes, you will pay taxes on the refund amount on your business return as it reduces the payroll expenses paid. Make sure to talk to your accountant for details.

How will I receive the refund?

You will receive a paper check via USPS mail from the IRS.

When can I expect to receive the refund?

Unfortunately, we do not know timing. We are expecting this to take months.

When does Payroll Vault collect their fee?

After you have received the check from the IRS. We will watch your IRS activity on your behalf for progress on the process.

Is this legitimate legislation?

Yes. The copy of the IRS FAQs can be found here. A good breakdown of the explanation of the law via Forbes can be found here, here, and here.

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