The Advisory


2021 Q1

How the Expanded Employee Retention Credit Benefits Businesses that Kept Employees

Under the 2020 CARES Act, the Employee Retention Credit (ERC) was established to help employers keep workers employed despite the impacts of the COVID-19 pandemic. The recently passed Consolidated Appropriations Act expanded and extended the ERC. Under this program, an employer can get a reduction in their payroll taxes if either all or part of its business activity was curtailed due to a government-mandated shutdown or if its revenues were down significantly (see details following). Some of the more notable changes in the recent legislation include:

  • Obtaining a Payroll Protection Program (PPP) loan no longer bars employers from taking the ERC; this is a retroactive change, so businesses that would have otherwise been eligible for the ERC in 2020 can retroactively claim the credit on wages that weren’t covered by the PPP loan.
  • Starting January 1, 2021, the ERC is available to businesses with up to 500 active, non-furloughed workers (up from 100 in 2020) and whose revenues have been reduced by 20% or more compared to the same quarter in 2019 (down from 50% in 2020).
  • Starting January 1, 2021, the credit cap per retained employee has been increased to $7,000 per quarter (up from $5,000 per year in 2020).

The extended ERC is available for the first two quarters of 2021, ending June 30, 2021.

If your business qualifies based on these factors, Raphael and Raphael can analyze your payroll expenses to help you determine the amount of—and file for—the credit in coordination with your payroll service. If you have any questions, please feel free to contact us.

Legislative Correction Related to the Tax Life of Qualified Improvement Property

If you placed qualified leasehold improvement or restaurant property into service after December 31, 2017, you may be eligible to accelerate the depreciation on—or fully expense—those improvements.

A drafting error in the Tax Cuts and Jobs Act of 2017 resulted in qualified improvement property having a mandated 39-year tax life and being ineligible for bonus depreciation. However, the 2020 CARES Act provided a retroactive correction to this error.

Taxpayers can take advantage of this correction by filing amended returns for the affected years or submitting an Application for Change in Accounting Method (IRS Form 3115) with their next (in most cases, 2020) return. When filed, the Application for Change in Accounting Method will allow the taxpayer to take the accelerated deduction resulting from the shorter tax life or retroactive bonus depreciation.

If Raphael and Raphael prepares your business tax returns, we will help you determine how to best treat the correction for your tax situation. If you have any questions, please feel free to contact us.

Focus on Your Business, Let Us Do the Accounting

We offer Managed Bookkeeping, which lets you focus on your company’s core competencies while we take care of the accounting. We’ll provide you with timely, accurate reporting and lend our expertise in financial statement analysis to provide you with better insight to your business’s financial performance. Imagine the peace of mind of knowing that your accounting is accurate, up to date and in compliance—and all for an affordable, predictable monthly fee. Together, we can build a custom service designed around your business needs and goals. Contact us today and we’ll help you worry less about your books and focus more on your business.