Employee Retention Tax Credit for Energy Companies
Energy companies have been hit hard by the COVID-19 pandemic. Due to the economic downturn, many businesses have been forced to lay off employees or reduce their hours. The Employee Retention Tax Credit (ERTC) was created to help businesses keep employees on payroll during the pandemic. This tax credit is available to eligible employers that have been impacted by COVID-19 and demonstrate at least a 50% drop in gross receipts when compared to similar quarters. Energy companies can benefit from the ERTC and boost their bottom line.
Importance of ERTC for Energy Companies
The ERTC is a refundable tax credit that can be claimed by eligible employers. The credit is worth up to 50% of qualifying wages paid from March 13th to October 1, 2021. For energy companies, this means that they can claim the credit for wages paid to their employees during this time period, even if they received PPP loans. The ERTC is a valuable opportunity for energy companies to retain their employees and avoid layoffs, whilst also benefitting from the tax credit.
Brief Overview of the Article
In this article, we will discuss the eligibility criteria for energy companies to claim the ERTC, the credit dollars available, and how to claim the ERTC. We will also provide examples of energy companies that have benefited from the ERTC and compare it to other COVID-19 relief measures. By the end of this article, energy companies will have a better understanding of how they can claim the ERTC and how it can help their financial situation.
ERC Eligibility for Energy Companies
To be eligible for the ERTC, energy companies must meet certain criteria. In this section, we will discuss the eligibility criteria for energy companies to claim the ERTC, based on information provided by the IRS and Schneider Downs.
Overview of ERC Eligibility Criteria
The eligibility criteria for the ERTC have been expanded due to the pandemic. To be eligible for the ERTC, an employer must meet one of two criteria:
– The employer's business was fully or partially suspended by a government order due to COVID-19, or
– The employer experienced a significant decline in gross receipts during any quarter in 2020 or 2021.
For energy companies, the second criterion is most relevant. A significant decline in gross receipts is defined as a decline of 50% or more when compared to the same quarter in the previous year. Energy companies can demonstrate this decline by comparing their gross receipts in Q2 and Q3 2020 to Q2 and Q3 2019.
How Energy Companies Can Qualify for ERC
Energy companies can qualify for the ERTC by meeting the eligibility criteria outlined above. According to information provided by the KBKG, if an energy company experienced a significant decline in gross receipts, they may be eligible for the ERTC. However, it is important to note that the eligibility criteria must be met for each quarter that the credit is claimed. If an energy company's gross receipts increase in a particular quarter, they may no longer be eligible for the ERTC.
Impact of COVID-19 on Eligibility Criteria
The COVID-19 pandemic has had a significant impact on the eligibility criteria for the ERTC. According to information provided by Schneider Downs, the Consolidated Appropriations Act expanded the eligibility criteria and credit dollars available for employers for the first two quarters of 2021. Employers impacted by a government order are eligible even if they do not meet the gross receipts test. The threshold number of employees increased from 100 to 500 when determining how “qualified wages” are to be calculated.
Maximum Amount of ERC for Energy Companies
The maximum amount of the ERTC for energy companies is $7,000 per employee per quarter for the first two quarters of 2021. This means that an energy company can claim up to $14,000 per employee for the first two quarters of 2021. The maximum amount of the ERTC for the third and fourth quarters of 2021 is $28,000 per employee, according to information provided by Schneider Downs.
How Energy Companies Can Claim the ERTC
In this section, we will discuss how energy companies can claim the ERTC, based on information provided by the IRS and KBKG.
Claiming the ERTC on Tax Returns
Energy companies can claim the ERTC on their tax returns. According to information provided by the IRS, eligible employers can claim the credit on their tax returns, and recovery startup businesses can claim it in Q4 2021. To claim the ERTC, energy companies will need to complete the Employee Retention Credit Form 941 for each quarter that they are claiming the credit.
Retroactively Applying for the ERTC
If an energy company received a PPP loan, they may still be able to retroactively apply for the ERTC. According to information provided by Schneider Downs, employers who received a PPP loan can retroactively apply for the ERC if they meet the new eligibility requirements. This means that energy companies that previously did not qualify for the ERTC may now be able to claim it.
Comparing the ERTC to Other COVID-19 Relief Measures
Energy companies may be eligible for other COVID-19 relief measures in addition to the ERTC. For example, the Paycheck Protection Program (PPP) provided loans to small businesses to help them keep their workforce employed during the pandemic. According to information provided by SnackNation, eligible employers can receive up to 50% of qualifying wages paid from March 13th to October 1, 2021 through the ERTC. However, the PPP loan forgiveness amount may be reduced if the ERTC is claimed. Energy companies should carefully review the eligibility criteria and financial impact of each relief measure to determine which ones to apply for.
Examples of Energy Companies Benefiting from the ERTC
Several energy companies have already benefited from the ERTC. According to information provided by Leyton, one energy company claimed the ERTC for $1.5 million in wages paid to their employees during the pandemic. Another energy company claimed the ERTC for $1.2 million in wages paid to their employees. These examples demonstrate that the ERTC can provide significant financial relief for energy companies impacted by the pandemic.
How Energy Companies Can Maximize ERTC Benefits
In this section, we will discuss how energy companies can maximize their ERTC benefits, based on information provided by KBKG and SnackNation.
Calculating the ERTC
To maximize their ERTC benefits, energy companies must calculate the credit they are eligible for. According to information provided by KBKG, the ERTC is a refundable credit available to eligible employers for wages paid to eligible employees from March 13, 2020, through September 30, 2021, even if they received PPP loans. Businesses that started up after February 15, 2020, are eligible for up to $100,000 of credits on wages paid from July 1, 2021, through December 31, 2021. The maximum amount of the ERTC for the first two quarters of 2021 is $14,000 per employee, and the maximum amount of the ERTC for the third and fourth quarters of 2021 is $28,000 per employee.
Determining Eligible Wages
Energy companies must also determine which wages are eligible for the ERTC. According to information provided by SnackNation, eligible wages include wages and compensation paid to employees during the period in which the company experienced a significant decline in gross receipts or was fully or partially suspended by a government order. The credit rate for eligible wages is 70% for the first two quarters of 2021, up from 50% in 2020.
Keeping Accurate Records
To maximize their ERTC benefits, energy companies must keep accurate records. According to information provided by KBKG, energy companies should maintain documentation to support their eligibility for the credit, including records of the number of full-time employees and their wages, and documentation of the decline in gross receipts or government order that impacted their business. The IRS may request documentation to support an energy company's claim for the ERTC, so it is important to keep records for at least four years after the date the tax becomes due or is paid, whichever is later.
Seeking Professional Advice
Energy companies should consider seeking professional advice to maximize their ERTC benefits. According to information provided by SnackNation, employers should be cautious of third-party advice related to the ERTC, as some advisors may provide inaccurate or incomplete information. Energy companies should work with a trusted tax advisor or accountant to ensure that they are maximizing their ERTC benefits while complying with all applicable laws and regulations.
Pitfalls to Avoid When Claiming the ERTC
In this section, we will discuss the pitfalls to avoid when claiming the ERTC, based on information provided by the IRS and Leyton.
Claiming the ERTC for Ineligible Wages
One common pitfall to avoid when claiming the ERTC is claiming the credit for ineligible wages. According to information provided by Leyton, wages paid to certain family members and owners of the business are not eligible for the ERTC. In addition, wages paid to employees who did not perform services for the business during the applicable period are not eligible.
Misunderstanding the Eligibility Criteria
Another pitfall to avoid is misunderstanding the eligibility criteria for the ERTC. According to information provided by the IRS, energy companies must meet specific eligibility criteria to claim the ERTC, including experiencing a significant decline in gross receipts or being fully or partially suspended by a government order. Energy companies that do not meet these criteria are not eligible for the credit.
Failing to Claim the ERTC in a Timely Manner
Energy companies must also claim the ERTC in a timely manner. According to information provided by Leyton, the deadline to claim the ERTC for the 2020 tax year is May 17, 2021. Energy companies that do not claim the credit by the deadline may lose out on the opportunity to receive financial relief.
Not Seeking Professional Advice
Finally, energy companies should avoid the pitfall of not seeking professional advice when claiming the ERTC. According to information provided by Leyton, the rules and requirements for the ERTC are complex, and energy companies may benefit from working with a tax advisor or accountant to ensure that they are complying with all applicable laws and regulations. The IRS may audit an energy company's claim for the ERTC, so it is important to work with a professional who can provide accurate and complete information.
Conclusion
The Employee Retention Tax Credit (ERTC) is a valuable resource for energy companies impacted by the COVID-19 pandemic. Eligible employers can claim the credit on their tax returns, and recovery startup businesses can claim it in Q4 2021. Energy companies that received a PPP loan may still be able to retroactively apply for the ERTC if they meet the new eligibility requirements.
To maximize their ERTC benefits, energy companies must calculate the credit they are eligible for, determine which wages are eligible, keep accurate records, and seek professional advice. Energy companies should also avoid the pitfalls of claiming the credit for ineligible wages, misunderstanding the eligibility criteria, failing to claim the credit in a timely manner, and not seeking professional advice.
By following these guidelines and working with a trusted tax advisor or accountant, energy companies can take advantage of the ERTC and receive financial relief during these challenging times.
Ready to Maximize Your ERTC Benefits?
If you're an energy company impacted by the COVID-19 pandemic, the Employee Retention Tax Credit (ERTC) could be a valuable resource for your business. By claiming the credit on your tax returns, you could receive financial relief and boost your bottom line.
To maximize your ERTC benefits, follow these guidelines:
- Calculate the credit you are eligible for
- Determine which wages are eligible
- Keep accurate records
- Seek professional advice
- Avoid common pitfalls
If you need help navigating the complex rules and requirements of the ERTC, consider working with a trusted tax advisor or accountant. By partnering with a professional, you can ensure that you are complying with all applicable laws and regulations and taking advantage of all available financial relief.
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Questions & Answers
Who is eligible for the Employee Retention Tax Credit for energy companies?
Energy companies impacted by COVID-19 that meet specific eligibility criteria.
What is the Employee Retention Tax Credit for energy companies?
A refundable tax credit designed to help businesses keep employees on payroll.
How can energy companies claim the Employee Retention Tax Credit?
By calculating the credit they are eligible for and claiming it on their tax returns.
Who can energy companies work with to maximize their Employee Retention Tax Credit benefits?
A trusted tax advisor or accountant who can provide accurate and complete information.
What are some common pitfalls to avoid when claiming the Employee Retention Tax Credit?
Claiming the credit for ineligible wages, misunderstanding eligibility criteria, and more.
How can energy companies ensure they are complying with all applicable laws and regulations related to the Employee Retention Tax Credit?
By seeking professional advice and keeping accurate records to avoid potential audits.
