The Impact of ERTC on Architecture and Engineering Firms
The Employee Retention Tax Credit (ERTC) has been an essential tool for businesses since the pandemic hit in 2020. The ERTC is a refundable payroll tax credit designed to help businesses keep their employees on the payroll. The credit is up to $5,000 per qualified employee for 2020 and $7,000 per employee per quarter in 2021, and it has helped many businesses stay afloat during these tough times. In this article, we will discuss the impact of ERTC on architecture and engineering firms.
ERTC for Architecture and Engineering Firms
ERTC applies to architecture and engineering firms, and it has been a lifeline for many AEC firms struggling to make ends meet during the pandemic. As per Anchin, businesses can qualify for the ERTC if they experienced a reduction in gross receipts in 2020 or 2021 compared to 2019. Even if they did not have a reduction in gross receipts, they can still qualify for ERTC if they experienced a government suspension in 2020.
Difference between 2020 and 2021 ERTC for AEC Firms
According to Deltek, the rules for 2020 and 2021 ERTC differ for AEC firms. For the 2021 credit, a company can qualify if its revenue for the quarter is 20% below the same quarter in 2019. If it has less than 500 employees, it can qualify for a quarterly credit of 70% of wages up to a max quarterly credit of $7,000 per employee. For the 2020 credit, a company can qualify if it has a 50% revenue drop compared to the equivalent 2019 quarter's revenue or if it is fully or partially shut down due to a government order.
Government Suspension and ERTC Eligibility
As per Anchin, a government suspension is when the government orders a business to partially or fully shut down due to a public health emergency. AEC firms that faced such government suspensions in 2020 can qualify for ERTC.
Three Tax-Saving Strategies for Architecture and Engineering Firms
Architecture and engineering firms can save millions of dollars in tax benefits each year by claiming R&D Tax Credits, Employee Retention Tax Credits, and 179D Tax Deductions. These tax benefits are often overlooked but can result in significant cash flow for firms. In this section, we will discuss these three tax-saving strategies in detail.
R&D Tax Credits
According to Tax Point Advisors, R&D tax credits aim to stimulate innovation, growth, and competitiveness. Engineering activities must pass a four-part test to qualify for R&D tax credits, with sustainable design, new technology, and environmental impact studies being typical qualifying activities. AEC firms that invest in these activities can claim a tax credit of up to 10% of their qualified research expenses.
Employee Retention Tax Credits
As discussed earlier, ERTC is a refundable payroll tax credit designed to help businesses keep their employees on the payroll. AEC firms that qualify for ERTC can claim tax credits of up to $5,000 per qualified employee for 2020 and $7,000 per employee per quarter in 2021. ERTC has been a lifeline for many AEC firms struggling to make ends meet during the pandemic.
179D Tax Deductions
According to KBKG, 179D allows a tax deduction of up to $1.80 per square foot for energy-efficient commercial buildings. AEC firms that design energy-efficient buildings can claim these tax deductions. The deduction can be claimed for lighting, HVAC, and building envelope improvements.
The above tax-saving strategies can result in significant cash flow for AEC firms. However, it is important to consult a tax expert to navigate these tax credits and deductions. A tax expert can ensure that your AEC firm maximizes its tax savings and stays compliant with tax regulations.
Qualifying for ERTC
Qualifying for ERTC can be a complex process, and it is important to understand the eligibility criteria to ensure your AEC firm receives the maximum benefit. In this section, we will discuss the eligibility criteria for ERTC and how AEC firms can qualify for it.
The Four-Part Test for R&D Tax Credits
As discussed earlier, AEC firms can qualify for R&D tax credits if they invest in qualifying activities. The activities must pass a four-part test to qualify for the tax credit. The four-part test includes:
- Permitted Purpose: The purpose of the activity must be to develop a new or improved business component.
- Elimination of Uncertainty: The activity must involve the elimination of uncertainty concerning the development or improvement of the business component.
- Process of Experimentation: The activity must involve a process of experimentation to eliminate the uncertainty.
- Technological in Nature: The process of experimentation must rely on the hard sciences, such as engineering, physics, or computer science.
Environmental Impact Studies
According to Tax Point Advisors, AEC firms that conduct environmental impact studies can qualify for R&D tax credits. Environmental impact studies are typically aimed at minimizing the environmental impact of a project.
Sustainable Design
Sustainable design is an essential part of modern architecture and engineering. AEC firms that design energy-efficient buildings and incorporate sustainable materials and practices can qualify for R&D tax credits.
AEC firms that invest in the above activities can claim R&D tax credits. It is important to consult a tax expert to ensure that your AEC firm maximizes its tax savings and stays compliant with tax regulations.
How to Claim ERTC
AEC firms that qualify for ERTC can claim tax credits of up to $5,000 per qualified employee for 2020 and $7,000 per employee per quarter in 2021. In this section, we will discuss how to claim ERTC.
Claiming ERTC for 2020
AEC firms that qualify for ERTC in 2020 can claim the tax credit on their 2020 federal payroll tax returns. The credit can be claimed for the period from March 13, 2020, to December 31, 2020.
Claiming ERTC for 2021
AEC firms that qualify for ERTC in 2021 can claim the tax credit on their federal payroll tax returns for each quarter. The credit can be claimed for the period from January 1, 2021, to December 31, 2021. To claim the credit, AEC firms must report the amount of the credit on their federal employment tax returns. They can reduce their federal employment tax deposits by the amount of the credit.
Documentation Required to Claim ERTC
It is important to keep detailed records of the employees qualifying for ERTC, the amount of wages paid to these employees, and the period of time the employees were kept on the payroll. This documentation is necessary to claim ERTC and to support the tax credit claimed on the payroll tax returns.
Consulting a Tax Expert
As discussed earlier, it is important to consult a tax expert to navigate the ERTC and ensure that your AEC firm maximizes its tax savings and stays compliant with tax regulations. A tax expert can help you identify the qualifying employees, calculate the amount of the credit, and prepare the necessary documentation to claim ERTC.
By following the above steps, AEC firms can claim ERTC and receive the maximum benefit from this essential tax credit.
Common Misconceptions About ERTC
There are several misconceptions about ERTC that can prevent AEC firms from claiming this essential tax credit. In this section, we will discuss some common misconceptions about ERTC and provide clarity on the eligibility criteria.
Misconception #1: ERTC is Only Available to Essential Businesses
One of the most common misconceptions about ERTC is that it is only available to essential businesses. However, this is not true. The ERTC is available to both essential and non-essential businesses affected by the pandemic. As Alliantgroup notes, many businesses disqualify themselves prematurely due to misinformation and rumors.
Misconception #2: ERTC is Only for Businesses That Experienced a Reduction in Gross Receipts
Another common misconception about ERTC is that it is only available to businesses that experienced a reduction in gross receipts in 2020 or 2021 compared to 2019. However, even if a business did not have a reduction in gross receipts, it can still qualify for ERTC if it experienced a government suspension in 2020. As Anchin notes, a government suspension can include mandatory shutdowns, reduced hours of operation, and other restrictions.
Misconception #3: ERTC is Too Complicated to Claim
Claiming ERTC can be a complex process, and many AEC firms believe that it is too complicated to claim. However, as Deltek notes, it is recommended to consult a tax expert when trying to navigate this tax credit. A tax expert can help you identify the qualifying employees, calculate the amount of the credit, and prepare the necessary documentation to claim ERTC.
Misconception #4: ERTC is Not Worth the Effort
Some AEC firms may believe that ERTC is not worth the effort required to claim it. However, as discussed earlier, ERTC can result in significant cash flow for AEC firms. AEC firms can claim tax credits of up to $5,000 per qualified employee for 2020 and $7,000 per employee per quarter in 2021. By claiming ERTC, AEC firms can keep their employees on the payroll and avoid layoffs or furloughs.
By understanding the eligibility criteria and dispelling common misconceptions about ERTC, AEC firms can claim this essential tax credit and receive the maximum benefit.
Wrapping Up
In conclusion, ERTC is an essential tax credit that can help AEC firms retain their employees and stay compliant with tax regulations. AEC firms that qualify for ERTC can claim tax credits of up to $5,000 per qualified employee for 2020 and $7,000 per employee per quarter in 2021.
To qualify for ERTC, AEC firms must meet the eligibility criteria, which include experiencing a reduction in gross receipts or a government suspension. AEC firms can also claim R&D tax credits, employee retention tax credits, and 179D tax deductions to save millions of dollars in tax benefits each year.
It is important to consult a tax expert to navigate the ERTC and ensure that your AEC firm maximizes its tax savings and stays compliant with tax regulations. A tax expert can help you identify the qualifying employees, calculate the amount of the credit, and prepare the necessary documentation to claim ERTC.
We hope this article has been informative and helpful in providing clarity on ERTC for AEC firms. Check out our other great content on tax savings and compliance for AEC firms.
FAQ
Who is eligible for the employee retention tax credit for engineering firms?
AEC firms that experienced a reduction in gross receipts or a government suspension.
What is the maximum tax credit per employee for AEC firms in 2021?
AEC firms can claim up to $7,000 per employee per quarter in 2021.
How can AEC firms claim the employee retention tax credit?
AEC firms can claim the tax credit on their federal payroll tax returns.
What is the misconception that prevents AEC firms from claiming ERTC?
A common misconception is that ERTC is only available to essential businesses.
How can AEC firms ensure they are compliant with tax regulations when claiming ERTC?
It is important to consult a tax expert to navigate the ERTC and ensure compliance.
What other tax credits can AEC firms claim to save money?
AEC firms can also claim R&D tax credits and 179D tax deductions.
