Employee Retention Credit Extended, and other updates
The ERC now goes through the end of the year
The $1.9T bill passed in the Senate this weekend is much more than $1400 checks. Here’s what you should know:
The Employee Retention Credit (ERC) will be extended through the end of this year, meaning you may be able to claim it in Quarters 3 and 4.
Each quarter that you’re eligible for the ERC, you’ll get reimbursed by the federal government for 70% of the first $10,000 in wages per employee.
To be eligible, your business needs to be affected by a COVID-related closure or have a 20% reduction in gross receipts. If you have a 20% reduction in gross receipts, you qualify for that quarter and the next quarter automatically.
To qualify in any quarter, you compare your gross receipts to either same quarter in 2019 or compare the quarter immediately preceding or to the.
So, to qualify in the 3rd Quarter of 2021 (July-September), you will need to either have a 20% reduction in gross receipts in Quarter 2, compared to the same quarter in 2019. Or have a 20% reduction in Quarter 3 itself.
And to qualify in the 4th Quarter of 2021, you’ll need to show that your gross receipts in Quarter 4 are 20% less than your gross receipts in the 4th Quarter of 2019. Or, if you don’t open up camp fully this summer, you can qualify by comparing the 3rd Quarter of 2021 to the 3rd Quarter of 2019.
In the ideal scenario to maximize your ERC eligibility for 2021, you’ll want to accrue as much of your revenue as possible in the 3rd Quarter of this year (July-September). That means managing grants, matches, and billing so that you “book” that revenue starting July 1. Many camps with significant retreat and off-sesaon revenue will likely meet the gross receipts reduction test as well.
When does camp tuition book? That’s up to your accountant. Typically, for camps using accrual accounting, you would book your tuition as revenue on the first day of the summer program that the child is enrolled in (or when the possibility of refunds / not providing the service has elapsed). Given the risk of a COVID outbreak and/or government order to close, camps may choose to accrue program revenue on a daily basis. As a result, you would also likely accrue significantly less in gross receipts in June.
Here are the tables showing how a sample camp might qualify for all quarters in 2021 or 3 out of 4 quarters in 2021.
For more details about how the ERC works, please read my original breakdown:
Wait, remind me what the ERC is again?
The ERC is what is called a “refundable” payroll tax credit. That’s a technical term that means the IRS will send you a check for whatever credit you claim. It does not matter how much payroll tax you pay or if you are a non-profit.
This program is a payroll tax program and you apply for the credit on your payroll tax forms. Your payroll provider (or accountant), not your bank, will submit the request for the credit with your payroll tax filing. (You do not need to submit any financial records either).
In 2021, if you qualify for the credit, you will be able claim a credit towards 70% of the first $10,000 in wages for every employee, for every quarter. That’s up to $28,000 in credits per employee for wages paid from Jan 1 to December 31, 2021.
The rules on how to qualify for the credit and how to use it alongside your PPP funds are complicated. If you haven’t, make sure you read every word of my breakdown on it here. If you don’t read until the end, you may end up leaving tens of thousands of dollars on the table.
Once you determine that you will be able to qualify in 2021, you can start to put this credit into action for your camp right away. For example, for any additional staff you might want to hire to help prepare camp, you will only be paying the 30% of their first $10,000 in wages per quarter (plus the employer share of payroll taxes and workers comp).