As a business owner, you know just how much COVID-19 impacted every element of your business. With dwindling employees, plummeting sales, and no end in sight, you probably don’t look back on that time fondly. Fortunately, the government introduced the Employee Retention Credit (ERC or ERTC) to help struggling businesses, and you can still claim this tax credit.
The ERTC recovery team here at Dayes Law Firm keeps up to date with changes to the Employee Retention Tax Credit and can explain how to qualify and claim your refund, which can be complex if your business has international operations.
What Is the ERTC?
The Employee Retention Tax Credit is a refundable tax credit that allows you to claim employee wages you paid during 2020 and 2021. In 2020, Congress passed the Coronavirus, Aid, Relief, and Economic Security Act to incentivize employers to keep employees on their payroll at a time when many had to shut down businesses or let employees go.
In 2021, the Consolidated Appropriations Act expanded the qualifications for the ERTC to apply to more businesses. It also extended the timeline for the ERTC through 2021, but that was later cut short by the Infrastructure Investment and Jobs Act. Now, most businesses can only claim the first three quarters in 2021.
Understanding the ERTC Qualifications
To meet the ERTC qualifications, you must pass one of the tests: the gross receipts test or the suspension of operations test.
To qualify for the ERTC in 2020, you had to have experienced a 50% or more loss in gross receipts when comparing corresponding quarters to 2019. Another way to qualify for the ERTC is a full or partial suspension of operations due to orders from an appropriate governmental authority.
To qualify for the ERTC in 2021, you must have:
- Seen a 20% or more loss in gross receipts; or
- Fully or partially suspended operations due to a government order
In September, the IRS announced “an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program” as a result of increased fraud concerns.
IRS Commissioner Danny Werfel noted in the announcement, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” and urged that when it comes to claiming the credit, “businesses should seek out a trusted tax professional who actually understands the complex ERC rules.”
If you work with a tax professional on your Employee Retention Tax Credit application, you’ll have someone that completely understands the ERTC and tax code on your side and will be less likely to turn in an incorrect claim to the credit.
What Counts as International Operations When Claiming Tax Credits?
As business sales and demand grow, so do their operations. International operations describe any international production, marketing, or sales that take place outside of the United States. Additionally, your business may own subsidiaries outside of the United States, or you own the subsidiary, while the parent company is international.
There are several types of US-based subsidiaries that each count as a single employer when filing the Employee Retention Tax Credit:
- Parent-subsidiary controlled group
- Brother-sister controlled group
- Combined group
Businesses with International Operations Claiming the ERTC
If you’re an eligible employer and experienced a full or partial suspension of operations, you qualify for the ERTC. Next, you need to determine what your eligible wages are. This can become complicated if you have international operations.
Your eligible wages depend on the number of employees you have. The IRS defines a “small business” as one with 100 or fewer employees in 2020, and 500 or fewer in 2021. If you fall under this category, you can claim all employee wages.
However, most businesses with international operations are larger than this. If you have more than 500 employees, you can only claim wages you paid to employees who couldn’t work due to COVID-19.
You may wonder if you can include the wages of international workers. According to the IRS, however, you can only claim wages paid to US-based employees.
ERTC Tax Assistance With Dayes Law Firm
Do you still have questions about the Employee Retention Tax Credit? No problem, Dayes Law Firm offers ERTC tax assistance. We have assisted hundreds of businesses in claiming the ERTC,Check out our services and we want to help you too. To file a quarterly federal tax return or claim for a refund under the ERTC, call us at 866-505-9860.