ERC

Question 1

What are the credit percentages and qualified wages for the ERC

Answer 1

Period 3-13-20 to 12-31-20 1-1-21 to 6-30-21 7-1-21 to 12-31-21
Credit Percentage 50% 70% 70%
Qualified Wages CAP 10k per elg EE for 2020 10K per eligible employee per calendar quarter
Max credit per elg EE 5K for year 2020 $7,000 per calendar quarter

Source: Ck PT Webinar: ERC-Too Valuable to Miss

Question 2

The term eligible employer means what?

Answer 2

The operation of the trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate gov’t authority limiting commerce, travel or group meetins due to covid 19

or

Employer experienced a significant decline in gross receipts

Question 3

What is the interaction of wages for the ERC and wages for PPP

Answer 3

An eligible ER that received PPP loan is deemed to have made election out of the ERC for those qualified wages included
in the the amount REPORTED as payroll cost on a paycheck protection loan forgiveness application

Question 4

The ERC does not apply to wages for which ???

An eligible employer is NOT deemed to have made and election …

Answer 4

The ERC does not apply to the qualified wages for which the election or deemed
election is made.
• An eligible employer is not deemed to have made an election for any qualified
wages paid by the eligible employer that are not included in the payroll costs
reported on the PPP Loan Forgiveness Application

page 44 Ck Pt slies

Question 5

IRC Sec 51(i)1 provided wages are NOT taking into account with respect to what?

Answer 5

• Specifically, IRC Sec. 51 (i)(1) and Reg. 1.51-1 (e)(1) provide that wages are not
taken into account with respect to an individual who bears any of the relationships
described in IRC Sec. 152(d)(2)(A)-(H) to the following:
1 . The taxpayer, or
2. If the taxpayer is a corporation, to an individual who owns, directly or indirectly more than
50 percent in value of the outstanding stock of the corporation (majority owner of a
corporation), or
3. If the taxpayer is an entity other than a corporation, to any individual who owns, directly or
indirectly, more than 50 percent of the capital and profits interests in the entity (majority owner
of a noncorporate entity)

Ck Pt page 61

Question 6

What does notice 2021-49, a majority owner of a corporation is a related individual for purposes of ERC

Answer 6

•
• Per Notice 2021-49, a majority owner of a corporation is a related individual for
purposes of ERC, whose wages are not qualified wages, if the majority owner has
a brother or sister (whether by whole or half-blood), ancestor, or lineal descendant

                               Shareholder

       Sibling  |  Spouse  |    Ancestor    |    Descendant

Question 7

What does this mean?
If the majority owner of a corporation has no brother or sister (whether by whole or
half-blood), ancestor, or lineal descendant as defined in IRC Sec. 267(c)(4), then
neither the majority owner nor the spouse is a related individual and the wages
paid to the majority owner and/or the spouse are qualified wages for purposes of
the ERC, assuming the other requirements for qualified wages are satisfied

Answer 7

•.

Question 8

Explain wage disallowance?

Answer 8

• IRC Sec. 280C(a) generally disallows a deduction for the portion of wages or
salaries paid or incurred equal to the sum of certain credits determined for the
taxable year.
• Accordingly, a similar deduction disallowance applies with regard to the ERC, such
that an employer’s deduction for qualified wages, including qualified health plan
expenses, is reduced by the amount of the ERC

Question 9

• The operation of the employer’s trade or business is fully or partially suspended
during the calendar quarter due to what?

Answer 9

Orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social,
religious, or other purposes) due to the coronavirus disease

Question 10

Orders from a government may be taken into account by an employer as what?

Answer 10

• Orders, proclamations, or decrees from the Federal government or any State or
local government may be taken into account by an employer as “orders from an
appropriate governmental authority only if they limit commerce, travel, or group
meetings (for commercial, social, religious, or other purposes) due to the
coronavirus disease (COVID-19) and relate to the suspension of an employer’s
operation of its trade or business.
• Orders that are not from the Federal government must be from a State or local
government that has jurisdiction over the employer’s operations

Question 11

Employers considered to have a full or partial suspension of operation are:

Answer 11

1. Essential business has a partial suspension of operations when more than a nominal portion of
   its business operations are suspended by a governmental order.
2. Employer has a partial suspension of its operations if a governmental order requires the
   business to close for a period of time during normal working hours.
3. Employer’s suppliers are unable to make deliveries of critical goods or materials due to a
   governmental order that causes the supplier to suspend its operations.
4. Closure of the workplace causes the employer to suspend business operations for certain
   purposes, but not others.

Question 12

Employers NOT considered to have full or partial suspension of operation:

Answer 12

• Employers not considered to have a full or partial suspension of operations:
1. Governmental order allows all of the employer’s operations to remain open.
2. Employer that suspends some (or all) of its operations because its customers are subject to a
government order requiring them to stay at home or otherwise causing a reduction in demand
for its products or services.
3. Employer that voluntarily suspends operation of a trade or business or voluntarily reduces
hours due to COVID-19.
4. Employer’s workplace is closed by a governmental order, but the employer is able to continue
operations comparable to its operations prior to the closure, including by requiring its
employees to telework

Question 13

What is considered an eligible decline in gross receipt for 2020 that would qualify a business for ERC

Answer 13

• The period an employer has a significant decline in gross receipts for a calendar
quarter in 202Q begins with the first calendar quarter beginning after December 31,
2019, for which gross receipts are less than 50% of the gross receipts for the
same calendar quarter in the prior year.

Question 14

If the business has a significant decline in gross receipts for a quarter in 2020, the significant declines ends when?

Answer 14

The period an employer has a significant decline in gross receipts for a calendar
quarter in 202Q ends with the calendar quarter FOLLOWING the first calendar quarter
in which gross receipts of the employer are greater than 80% of gross receipts for
the same calendar quarter in the prior year.

Example: Q2 2020 gross receipts 48% of 2019 gross receipts for Q2 ERC ELIGIBLE
Q3 2020 gross receipts 83% of Q3 in 2019 ERC ELIGIBLE
Q4 2020 EMPLOYER NOT ERC ELIGIBLE UNDER GROSS RECEIPTS RULES

Card 96

Question 15

For 2021 what constitutes a significant decline in gross receipts for a calendar quarter

Answer 15

An employer has a significant decline in gross receipts for a calendar quarter in
2021 if the employer’s gross receipts for the calendar quarter are less than 80%
of the gross receipts of the employer for the same calendar quarter in calendar
year 2019.

Slide 97

Question 16

For calendar 2021 quarters only, TCDTRA Sec. 207 allows employers to elect to
use an alternative quarter for eligibility purposes.. What is this alternative quarter eligibility ?

Answer 16

Specifically, employers may use the immediately preceding calendar quarter.
- For the first calendar quarter of 2021, an employer may elect to use its gross receipts for the
fourth calendar quarter of 2020 compared to those for the fourth calendar quarter of 2019 to
determine if the decline in gross receipts test is met.
- If an employer was not in existence as of the beginning of the fourth calendar quarter of 2019,
then the alternative quarter election will not be available for the first calendar quarter of 2021

Slide 98

Question 17

Under the alternative quarter for eligibility how is the second quarter and the third quarter determined:

Answer 17

For the second calendar quarter of 2021, an employer may elect to use its gross receipts for the
first calendar quarter of 2021 compared to those for the first calendar quarter of 2019 to
determine if the decline in gross receipts test is met

For the third calendar quarter of 2021, an employer may elect to use its gross receipts for the
second calendar quarter of 2021 compared to those for the second calendar quarter of 2019 to
determine if the decline in gross receipts test is met..

Notice 2021-49 clarifies that employers are NOT required to use the alternative quarter election consistently

Slide 99-101

Question 18

What is the definition of gross receipts

Answer 18

Gross receipts means gross receipts of the taxable year and generally includes
total sales (net of returns and allowances) and all amounts received
for services. In addition, gross receipts include any income from investments (e.g., interest,
tax-exempt interest, dividends, rents, royalties, and annuities) regardless of
whether those amounts are derived in the ordinary course of the taxpayer’s
trade or business.

Slide 103

Question 19

For 200 qualifying what are the dates for each quarter as it relates to ERC

Answer 19

2020 Q1 Form 941 N/A
2020 Q2 Form 941 - Report qualifying wages paid 3-13-20 to 6-30-20
2020 Q3 Form 941- Report qualifying wages paid 7-1-20 to 9-30-20
2020 Q4 Form 941 - Report qualifying wages paid 10-1-20 to 12-31-20

Question 20

The due date for filing 941-X depends on what:

Answer 20

The due date for filing Form 941-X depends on when the employer discovered the error, and if the employer
underreported (tax owed) or overreported (claim for refund) tax.

Slide 125

Further research needed / what does this mean

Question 21

Corrections for overreported taxes on a previously filed form 941 generally may be made when

Answer 21

• Corrections for overreported taxes on a previously filed Form 941 generally may be made within the later of three years of the date the incorrect Form 941 was iled, or two years from the date the tax was paid [Reg. 301.6511 (a)-1]. • For purposes of this limitation period, all four quarters of timely filed Forms 941 are deemed to have been filed on April 15 of the next calendar year.

Slide 127

Question 22

When claiming the credit what worksheet must you use on the 941X

Answer 22

Worksheet 2. Adjusted Employee Retention Credit for Wages Paid
After March 12, 2020, and Before July 1, 2021 Keep for Your Records g
You must use this worksheet if you claimed the employee retention credit for wages paid after March 12, 2020, and before July 1, 2021, on your original Form 941 and you correct any amounts used to figure the employee retention credit for wages paid after March 12, 2020, and before July 1, 2021. You’ll also use this worksheet to figure this credit if you’re claiming it for the first time on Form 941-X. If you’re a third-party payer, you must complete this worksheet for each client for which it is applicable, on a client-by-client basis.

Worksheet 4. Adjusted Employee Retention Credit for Wages Paid
After June 30, 2021, and Before January 1, 2022 Keep for Your Records fl
You must use this worksheet if you claimed the employee retention credit for wages paid after June 30, 2021, and before January 1, 2022, on your original Form 941 and you correct any amounts used to figure the employee retention credit for wages paid after June 30, 2021, and before January 1, 2022. You’ll also use this worksheet to figure this credit if you’re claiming it for the first time on Form 941-X. If you’re a third-party payer, you must complete this worksheet for each client for which it is applicable, on a client-by-client basis.

Slide 129

Question 23

Is their penalty relief

Answer 23

Related penalty relief.
- Notices 2020-22 and 2021-24 provide eligible employers relief from the IRC Sec. 6656 penalty
for an employer’s failure to timely deposit employment taxes to the extent the amounts not
deposited are equal to or less than the amount of refundable ERC to which the eligible employer
is entitled.

• Notice 2021-49 provides additional guidance that applies to calendar quarters 2020 and 2021. To
  the extent that an employer files an adjusted or amended return to reflect these clarifications and
  consequently owes additional tax, any penalties for failure to timely pay or deposit tax will not
  apply if the taxpayer can show reasonable cause and not willful neglect for those failures.

Slide 130

Question 24

Documentation to show how the employer determined it was an eligible employer that paid
qualified wages, including:

Answer 24

• Any governmental order to suspend the employer’s business operations;
• Any records the employer relied upon to determine whether more than a nominal portion of its operations
were suspended due to a governmental order or whether a governmental order had more than a nominal
effect on its business operations;
• Any records the employer used to determine it had experienced a significant decline in gross receipts;
• Any records of which employees received qualified wages and in what amounts; and

Slide 131

Question 25

What are some of the Federal Income Tax Ramifications?

Answer 25

CARES Act Sec. 2301 (e) [as further clarified in Notices 2021-20 and 2021-49] provides the general rule that an employer’s deduction for qualified wages, including qualified health plan expenses, is reduced by the amount of the ERC.

An employer does not reduce its deduction for the employer’s share of social security and Medicare taxes by any portion of the credit.

See example on slide 138

Question 26

When must you reduce the amount of the deduction for qualified wages, including qualified health expenses?

Answer 26

Timing. A reduction in the amount of the deduction allowed for qualified wages, including qualified health plan expenses, caused by receipt of the employee retention credit occurs for the tax year in which the qualified wages were paid or
incurred (Notice 2021-49).

Question 27

How long do you have to qualify for the ERTC

Answer 27

Wages that may qualify are from 3/13/20 to 9/30/21
You have 3 years from the original due date of that original 941. The 941X Due dates are as follows:
2nd Qtr 2020 Due 7-31-20

Question 28

How long do you have to qualify for the ERTC

Answer 28

Wages that may qualify are from 3/13/20 to 9/30/21
You have 3 years from the original due date of that original 941. The 941X Due dates are as follows:
2nd Qtr 2020 Due 7-31-20 941X due 7-31-23
3rd Qtr 2020 Due 10-31-20 941X due 10-31-23
4tr Qur 2020 Due 1-31-2 941X due 1-31-24
For 2021 Quarters 1,2 and 3 941X are due 4-30-24,
7-31-24 and 10-31-24

Ref: 2023 ERC Update
JJCPA