You may already know about employee retention credits, but in case you don’t, here’s a quick refresher. The Employee Retention Tax Credit (ERC or ERTC) is a refundable tax credit introduced in 2020 to help mitigate the impact of COVID-19 on employers. If you qualify for the ERC, you can receive up to $5,000 per employee in 2020 and up to $7,000 per employee quarterly in 2021. Discussed recent tax incentives. If you want a quick refresher on ERC, see my previous articleAre You Overlooking the Job Retention Tax Credit Opportunity??”
However, if you are already familiar with ERCs, I would like to cover a topic that has been largely ignored by most companies that offer ERCs. ERC Tax Credit Service: Recovery Startup Businesses (or RSB). The ERTC for most companies will end on September 30, 2021, thanks to the Infrastructure Investment and Jobs Act. However, for RSB eligible employers, the ERTC is available from 1 July 2021 to 31 December 2021. What is RSB, 3rd and how can he determine if he can claim ERTC in the 4th quarter of 2021?
Definition of reconstruction start-up business
of Notice 2021-49the IRS has clarified the definition of a recovery startup business, indicating that RSB employers must:
- — if you started trading or doing business on or after February 15, 2020;
- — Have an average annual gross income of less than $1 million for the three tax years ending 2021
- — otherwise not subject to ERTC due to shutdown or loss of gross income
As a Recovery Startup business, you are eligible to receive up to $50,000 in ERC per quarter in Q3 and Q4 of 2021. RSB requirements are relatively simple, but qualified.
If I start in 2020, how do I calculate my receipts for 3 tax years?
Clearly, if an RSB commences on or after 15 February 2020 and has a calendar year-end, then in the preceding ‘three years’ of 2021, the total amount of the 2020 tax year up to 16 February 2020 I have only income. So if an RSB started operations on July 1, 2020 and had gross revenue of $254,000 by December 31, 2020, gross revenue can be calculated as follows:
- — $254,000/6 months = $42,333/month average
- — $42,333 x 12 = $508,000
- — $508,000 is your average annual gross income.
In the example above, we’re annualizing total revenue by dividing it by the hours of operation (6 months) and multiplying the result by 12. Converting this into a formula, we get:
- 1st place: Gross income by business year/hour = Monthly average gross income
- No.2: Monthly Average Total Income x 12 Months = Annualized Average Total Income
- 3rd place: The result is the average annual gross income
“Other than that” rule for recovery start-up businesses
It is important to remember that recovery start-up businesses are not subject to the ERC due to government-ordered closures or reduced gross revenues in 2020 or 2021. This protection pays the same.
However, this should not be an issue as the Infrastructure Investment and Jobs Act will prevent non-RSB companies from qualifying for the ERC in the fourth quarter of 2021. suspension test Also Decreased revenue test.
What is the maximum amount RSB can receive from ERC?
If you qualify for RSB, you can receive up to $7,000 per employee per quarter, and up to $50,000 per quarter for the third and fourth quarters of 2021.
What about business acquisitions and mergers?
No specific guidance from the IRS regarding acquisitions, mergers or spin-offs tax code The acquired business is considered to have commenced on the date of acquisition, it said. Acquisitions or similar scenarios are very likely eligible for ERC as an RSB if the event occurs after February 15, 2020 and all other RSB requirements are met. However, RSB eligibility may vary by organization and ultimately eligibility will only be considered final once the circumstances have been reviewed by a tax professional and verified with supporting documentation.
Are you ready to claim ERTC as RSB?
If you are interested in claiming your ERC tax credit as an RSB, we highly recommend that you consult a tax professional. There are many nuances to the ERC, and particular care and extensive knowledge of tax laws and regulations is required when determining RSB eligibility. However, highly recommended whether you qualify as an RSB or fall under his ERC qualifications in general. Check your ERC eligibility Soon – ERC will expire in 2023.
Cassidy Jakovicas is the President and CEO of CPA. MBS Accounting Office Located in downtown Fresno.