Employee Retention Tax Credit Advance Payments

For Atlanta businesses hit hard by the COVID-19 pandemic, the relief programs offered by the Small Business Administration (SBA) including the Paycheck Protection Program (PPP) and the Restaurant Revitalization Fund (RRF) provided needed funding. However, as the pandemic subsides and programs close, options appear to be dwindling. Despite this fact, there are still ways to receive assistance from the federal government including the Employee Retention Tax Credit (ERC). This federal payroll tax credit provides a credit equal to 70% of up to $10,000 in qualified wages per eligible employee. This means qualifying Atlanta businesses can take a maximum credit of $14,000 per employee for the first half of 2021. While beneficial, many are surprised to learn that certain companies may also qualify to receive an advance. For those seeking to increase the company’s financial vitality, an ERC advance can be a source of much-needed funding. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

ERTC Advance Payments

Like other federal relief programs created as part of the CARES Act, the ERC has undergone several changes since its inception early last year. When launched, the rules surrounding advance payments were very liberal allowing almost any business to request an advance. In fact, for any calendar quarter in 2020, there were no restrictions on the circumstances under which an employer could request an advance payment and no maximum limits. One of the few requirements was that a business needed to reduce payroll deposits in anticipation of claiming an advance. In cases where the advance exceeded the amount of taxes due, the business was responsible to make repayment to the IRS.

Changes for 2021

These rules changed when the Consolidated Appropriations Act, 2021, was signed into law in late December 2020. Under new regulations, ERTC advance payments became prohibited for most except small eligible employers. The updated rules allow a 2021 small eligible employer to receive an advance credit payment in an amount not to exceed 70% of the average quarterly wages paid (70% advance rule) in calendar year 2019. Qualifying wages for purposes of the 70% advance rule, means the average wages or compensation, determined without including the social security wages base for each quarter in 2019.

Calculating the Advance Amount

For small eligible employers that file IRS Form 941, the average quarterly wages for the 70% advance rule are determined by averaging the amount reported on Line 5c, Taxable Medicare wages & Tips, on all Forms 941 which need to be filed for wages paid in 2019.

For those that file an annual federal employment tax return, average quarterly wages are calculated by dividing the amount required to be reported on the following by 4. This includes:

• 2019 Form 943 Line 4, Total wages subject to Medicare tax.
• 2019 Form 944, Line 4c, Taxable Medicare wages, and tips.
• 2019 Form CT-1, the sum of Line 2 (Tier 1 Employee Medicare Tax – Compensation) and Line 9 (Tier 1 Employer Medicare Tax – Sick Pay).

It is important to note, that a small eligible employer who opens for business in 2021 is not eligible to receive an advance. However, these businesses are allowed to reduce the amount of payroll deposits in anticipation of claiming the credit.

Contact Us

For Atlanta businesses looking to uncover additional sources of cash flow, the Employee Retention Tax Credit advance is an option to consider. Since the qualification and calculation rules are complicated, it is important to work with a qualified advisor to ensure money is not being left on the table. If you have questions about the information outlined above or need assistance with claiming an ERTC advance, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.