2020 Employee Retention Credit
Now available to those who took PPP loans, and retroactive
The new bill makes a really significant change to the March CARES act. The original CARES legislation made the Employee Retention Credit unavailable to PPP borrowers. Now, they have reversed that and stipulated that you can retroactively apply for the credit.
The basics of the credit: you can be credited/reimbursed for 50% of wages paid to employees (up to $5000 total credit per employee) for any quarter in which your business was closed due to government order or your total receipts were 50% compared to the same quarter in 2019.
You just can’t use it for wages which you apply towards PPP forgiveness. Camps should be able to use this credit to cover wages from Quarter 2 prior to the start of their PPP loan, and quarters 3 and/or 4 after their PPP loan ended / after you exhaust forgiven wages.
For Q4 2020 and the credit in 2021, a lot of camps will be wondering if they are still eligible. Here are the two eligibility criteria:
Your business is shut down by government order during the quarter
The operation of the employer’s trade or business must have been “fully or partially suspended” during the quarter due to “orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial social, religious, or other purposes, due to COVID-19.” Once this occurs, the quarter is an “eligible quarter,” but a business will only get a credit on wages paid during the part of the quarter the business was shut down.
You will need to review with your accountants if you qualify and when. Some examples that might qualify:
If your state did not allow overnight camping and the health department has not yet indicated that it will in 2021 (this is the case in New York state, for example).
If gathering size restrictions prevent you operating events that you normally would be able to. (There is no revenue test here, so the events don’t need to be revenue-generating, just that your ability to operate normally is restricted by gov order - not by your own self-imposed restrictions).
Or, your gross receipts are down 50% compared to the same quarter in 2019.
Once this happens, every quarter is an “eligible quarter” until the END of the quarter in which the business’s receipts have returned to at least 80% of what they were for the same quarter in 2019.
PPP revenues do not count towards gross receipts. Almost every camp will pass the 50% test for Quarters 2 & 3.
Are you down 20% in Quarter 4?
Remember, if you use accrual accounting, payments towards Summer 2021 or deposits on other events or rentals which have not yet occurred are not booked until the date the service is delivered (first day of camp for that camper, first day of the retreat). So those receipts in 2019 (and 2020) should not be counted.
If you use cash accounting, you can compare between your Q4 2019 camper deposits to Q4 2020, given you have already booked credited tuition earlier in the year, you will likely pass this test with cash accounting.
If you use accrual, you may find that you raised more money in Q4 2020 than in Q4 2019, which would make you ineligible via the revenue test.
But check the timing of gift pledges. Some large gifts may have been pledged in Q3, and only received in Q4. In which case, they should be booked in Q3 when the pledge was made.
If you choose to claim your eligibility via the revenue test, you’ll want to keep close track of revenue so that you can continue to claim the credit in 2021, when it increases.
This credit is claimed via your payroll provider. Every payroll provider needs to retool their forms to accommodate for the ability to claim this credit retroactively, so it may take a few weeks to put in a claim for Q2 or Q3. However, if you plan to claim for Q4, you should contact your payroll provider immediately so you can include the credit in your Q4 tax return that will be filed shortly.
The credit will first be applied to your taxes due and then you will receive a check for the remaining amount. Be patient, it can take months to get the check.
Here is an detailed and exhaustive article that explains pretty much all you need to know: https://www.forbes.com/sites/anthonynitti/2020/12/25/breaking-down-the-employee-retention-credit-part-1/?sh=1550c21df3d3
More here about eligibility: https://www.synergipartners.com/6-biggest-misconceptions-regarding-cares-act-employee-retention-credit-stimulus