Eligibility for the Employee Retention Tax Credit
As an accounting firm, it is important to know if you qualify for the Employee Retention Tax Credit (ERTC), which is a refundable tax credit designed to help businesses retain employees during the COVID-19 pandemic. The ERTC can be claimed for 2020 and 2021 and is filed through quarterly payroll tax returns. The amount of the credit varies depending on the year and qualified wages paid. However, not all accounting firms are eligible to claim this credit. In this section, we will discuss the qualifying criteria that accounting firms need to meet to be eligible for the ERTC.
Qualifying Criteria for Accounting Firms
There are two qualifying criteria that accounting firms need to meet to be eligible for the ERTC. These criteria are:
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Impact of COVID-19: Accounting firms must have experienced business disruptions due to COVID-19. This can include a full or partial suspension of operations due to government orders, or a significant decline in gross receipts.
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Significant decline in gross receipts: Accounting firms can also qualify for the ERTC if they have experienced a significant decline in gross receipts. The IRS defines a significant decline in gross receipts as a decline of 20% or more in gross receipts for a calendar quarter in 2020 or 2021 compared to the same quarter in 2019.
Explanation of government orders and how they impact eligibility
If your accounting firm has experienced a full or partial suspension of operations due to government orders, you may be eligible for the ERTC. However, it is important to note that not all government orders qualify for the credit. The IRS has issued guidance on qualifying via a government order for the ERTC, and accounting firms that cannot clearly point to how their qualification complies with the Notices may face extended scrutiny and potentially the requirement to repay the ERTC, with penalties and interest.
It is important to consult an ERTC expert to navigate the qualifying criteria and ensure that your accounting firm is eligible to claim the credit. In the next section, we will discuss how to claim the ERTC and the calculation of the credit amount.
Claiming the Employee Retention Tax Credit
Now that you know the qualifying criteria for the Employee Retention Tax Credit (ERTC), it's time to learn how to claim the credit. According to [Smith Schafer], the ERTC is a refundable tax credit that allows accounting firms to recoup wages paid to employees during the pandemic. The credit is claimed through quarterly payroll tax returns and is calculated based on the qualified wages paid to eligible employees.
Calculation of Credit Amount
To calculate the ERTC, accounting firms need to determine the qualified wages paid to eligible employees. The qualified wages are the wages paid to eligible employees during the period of time that the accounting firm met the qualifying criteria for the ERTC. The amount of the credit varies depending on the year and qualified wages paid.
For 2020, the credit is equal to 50% of qualified wages paid, up to a maximum of $5,000 per employee for the year. For 2021, the credit has been increased to 70% of qualified wages paid, up to a maximum of $7,000 per employee per quarter. This means that the maximum credit for 2021 is $28,000 per employee for the year, and it is advised to consult an ERTC expert to maximize the credit amount.
How to File for the Credit
According to [Smith Schafer], the ERTC is claimed through quarterly payroll tax returns. Accounting firms can reduce payroll taxes deposited to the IRS for that quarter by the amount of the credit. If the credit exceeds the amount of payroll taxes owed for that quarter, the excess credit can be refunded to the accounting firm.
It is recommended to consult an ERTC expert to ensure that the credit is claimed correctly and to maximize the credit amount. In the next section, we will discuss the expert guidance available for accounting firms on accounting for the ERTC.
Expert Guidance for Accounting Firms on Accounting for the ERTC
As an accounting firm, it is important to have expert guidance on accounting for the Employee Retention Tax Credit (ERTC). The American Institute of Certified Public Accountants (AICPA) has released guidance on accounting for the ERTC for both for-profit and not-for-profit entities, which were established by the CARES Act to help businesses retain employees during the pandemic.
According to [Journal of Accountancy], the AICPA advises accounting firms to use professional judgement when deciding which accounting model to use and whether their ERTC accounting policy should be consistent with their policy for accounting for Paycheck Protection Program loans. There are two accounting models for the ERTC:
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Accrual Method: The accrual method recognizes the ERTC as income in the period in which the qualified wages are incurred. This method is typically used if the accounting firm has a policy of recognizing tax credits as income in the period they are earned.
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Direct Method: The direct method recognizes the ERTC as a reduction of payroll expense in the period in which the qualifying wages are paid. This method is typically used if the accounting firm has a policy of recognizing tax credits as a reduction of expenses in the period they are earned.
The [Journal of Accountancy] also provides practical advice on applying the two accounting models and financial statement presentation and disclosures. Accounting firms should disclose the amount of the ERTC claimed and the accounting policy adopted for accounting for the ERTC. The ERTC should be presented as a separate line item on the financial statements.
It is important to work with a qualified provider to determine eligibility and maximize the credit, as there are misconceptions about eligibility. According to [Middle Market Center], the ERTC is taxable, and providers may offer guarantees or indemnification.
Now that you have expert guidance on accounting for the ERTC, you can ensure that your accounting firm is maximizing the credit and complying with the accounting standards. In the next section, we will discuss the benefits of claiming the ERTC for accounting firms.
Benefits of Claiming the ERTC for Accounting Firms
Claiming the Employee Retention Tax Credit (ERTC) offers many benefits for accounting firms. According to [CBIZ], the ERTC was introduced to encourage employers to keep employees during the pandemic by offering a refundable tax credit. Here are some benefits of claiming the ERTC for accounting firms:
Financial Benefits
The ERTC provides significant financial benefits for accounting firms. According to [Smith Schafer], eligible accounting firms can reduce payroll taxes deposited to the IRS for that quarter by the amount of the credit. If the credit exceeds the amount of payroll taxes owed for that quarter, the excess credit can be refunded to the accounting firm.
For 2020, the credit is equal to 50% of qualified wages paid, up to a maximum of $5,000 per employee for the year. For 2021, the credit has been increased to 70% of qualified wages paid, up to a maximum of $7,000 per employee per quarter. This means that the maximum credit for 2021 is $28,000 per employee for the year, and it is advised to consult an ERTC expert to maximize the credit amount.
Retaining Employees
The ERTC encourages accounting firms to retain employees during the pandemic. According to [CPA Practice Advisor], businesses that were closed due to a COVID-19 government order or experienced a significant decline in gross receipts are eligible for the ERTC. By retaining employees, accounting firms can maintain their workforce and avoid the costs of hiring and training new employees in the future.
Expert Guidance
Claiming the ERTC can be complex, and it is recommended to work with a qualified provider to determine eligibility and maximize the credit. According to [Middle Market Center], providers may offer guarantees or indemnification. By working with an ERTC expert, accounting firms can ensure that they are complying with the accounting standards and maximizing the credit amount.
Now that you know the benefits of claiming the ERTC for accounting firms, you can make an informed decision on whether to claim the credit. In the next section, we will discuss some common misconceptions about the ERTC.
Common Misconceptions About the ERTC
There are several common misconceptions about the Employee Retention Tax Credit (ERTC) that accounting firms should be aware of. In this section, we will discuss some of these misconceptions:
Misconception 1: Eligibility
One common misconception about the ERTC is eligibility. According to [CPA Practice Advisor], only businesses that were closed due to a COVID-19 government order or experienced a significant decline in gross receipts are eligible for the ERTC. Businesses that do not meet these criteria may not be eligible for the credit.
Misconception 2: Credit Amount
Another common misconception about the ERTC is the credit amount. According to [Smith Schafer], the maximum credit for 2021 is $28,000 per employee for the year. However, the credit amount varies depending on the year and qualified wages paid. It is advised to consult an ERTC expert to maximize the credit amount.
Misconception 3: Complexity
Claiming the ERTC can be complex, but it is important to understand the eligibility requirements and credit amount to ensure that accounting firms are maximizing the credit. According to [CBIZ], eligible accounting firms can reduce payroll taxes deposited to the IRS for that quarter by the amount of the credit.
Misconception 4: Compliance
It is important to comply with the accounting standards when claiming the ERTC. According to [Journal of Accountancy], the AICPA has released guidance on accounting for the ERTC for both for-profit and not-for-profit entities. Accounting firms should use professional judgement when deciding which accounting model to use and whether their ERTC accounting policy should be consistent with their policy for accounting for Paycheck Protection Program loans.
By understanding these common misconceptions about the ERTC, accounting firms can ensure that they are complying with the accounting standards and maximizing the credit amount. In the next section, we will provide some final thoughts on claiming the ERTC.
Final Thoughts
Claiming the Employee Retention Tax Credit (ERTC) can offer numerous benefits for accounting firms. By understanding the eligibility requirements, credit amount, and accounting standards, accounting firms can maximize the credit amount and retain their employees during the pandemic. Here are some final thoughts on claiming the ERTC:
Seek Expert Guidance
Claiming the ERTC can be complex, and it is recommended to work with a qualified provider to determine eligibility and maximize the credit. According to [Middle Market Center], providers may offer guarantees or indemnification. By working with an ERTC expert, accounting firms can ensure that they are complying with the accounting standards and maximizing the credit amount.
Stay Informed
As the pandemic evolves, so does the ERTC. It is important to stay informed of any changes or updates to the credit. By staying informed, accounting firms can ensure that they are complying with the eligibility requirements and maximizing the credit amount.
Check Out Our Other Great Content
If you found this article helpful, be sure to check out our other great content on [ertcguy.com]. We offer a wide range of articles and resources on accounting and tax-related topics to help your firm succeed.
In conclusion, the ERTC can provide significant financial benefits for accounting firms. By understanding the eligibility requirements, credit amount, and accounting standards, accounting firms can maximize the credit amount and retain their employees during the pandemic.
Questions and Answers
Who is eligible for the Employee Retention Tax Credit?
Businesses that were closed due to COVID-19 or experienced a significant decline in gross receipts are eligible.
What is the maximum credit amount for the ERTC?
The maximum credit amount for 2021 is $28,000 per employee for the year.
How can accounting firms maximize the ERTC?
Accounting firms can maximize the ERTC by working with a qualified provider to determine eligibility and comply with accounting standards.
Who should accounting firms seek guidance from when claiming the ERTC?
Accounting firms should seek guidance from qualified providers when claiming the ERTC.
What should accounting firms be aware of when claiming the ERTC?
Accounting firms should be aware of the eligibility requirements, credit amount, and accounting standards when claiming the ERTC.
How can accounting firms stay informed about changes to the ERTC?
Accounting firms can stay informed about changes to the ERTC by regularly checking for updates and news from reliable sources.
