The CARES Act COVID-19 stimulus-related Employee Retention Credit (ERC) was designed to encourage and reward companies that continue to pay their employees in the face of economic uncertainty.
Under the program, a 50% credit on the first $10,000 in wages and healthcare costs, with certain limitations, can be used to offset payroll taxes. If the taxpayer does not have a payroll tax liability large enough to fully offset, the Treasury will refund, within weeks, the amount of excess credit, even if the refund is an advance against future payroll taxes.
For employers with over 100 employees, the 50% credit applies to wages and healthcare costs attributable to time employees spent “not providing services.” For employers with under 100 employees, the credit applies to all employees impacted, whether or not the employees are performing services. Eligible periods for the credit start March 13th, 2020 and continue until December 31st, 2020, provided the taxpayer and the employees remain eligible under the Act.
Taxpayers cannot claim both the Employee Retention Credit and take a forgivable loan pursuant to the SBA Paycheck Protection Program (PPP) loan program. However, recently added FAQ 79 clarified that employers that repaid a Paycheck Protection Program loan by May 14, 2020 are not disqualified from the ERC.
How does a production qualify?
If your production was partially or fully suspended due to the governmental order to shut down, shelter in place, limit travel, group meetings, etc., in any calendar quarter, then that quarter qualifies for tax credits. If part of the controlled group of entities qualifies, current guidance indicates that the entire group of entities qualifies, provided that all such qualified wages meet the qualification criteria.
Are loan-outs eligible for the credit?
No. You may only claim credits on qualified wages for W-2 employees.
Are employers allowed to treat health plan expenses for furloughed employees who are not working or providing services due to COVID-19 as qualified wages for purposes of the ERC?
Yes, the IRS recently updated FAQs 64 and 65 on the employee retention credit (ERC) to allow all employers to treat health plan expenses for furloughed employees who are not working or providing services due to COVID-19 as qualified wages for purposes of the ERC, provided that the expenses are allocable to the time the employee is not providing services.
If I have one employee working on multiple productions, can I claim the credit for both productions?
Yes, but you will use the $10,000 cap on qualified wages and healthcare costs after aggregating all productions under the same entity and/or controlled group of entities. You also need to ensure that if that employee is working on another show with another provider, now or in the future, that they are subject to a $10,000 cap.
How do I determine if I have 100 employees or less?
To be eligible as a business that has 100 employees or less under the CARES Act, you must have had an average of less than 100 full time employees in the 2019 calendar year. Experienced consultants can help you to make this determination.
What are my recordkeeping requirements?
All records of employment tax and tax credits must be retained for at least four years for IRS review. Documentation must be kept to show eligibility for the ERC based on suspension of operations or significant decline in gross receipts and how you figured the amount of the ERC being claimed.
What if I decide to calculate the credit without professional support?
Like most economic development business tax incentive programs, the Employee Retention Credit has certain complexities that may impact your ability to maximize the value of the credit as well as ensure that you are not claiming more credit than is permitted. It is important to fully document processes and procedures, organize your records, and cover any risk areas in advance of any potential IRS audit of the claim, which may come years later. Issues such as normalizing pay rates, documenting qualification, validating other requirements, allocating healthcare expenses to the appropriate time periods, etc. may require professional advice as well. Additionally, the use of experienced consultants may help to streamline the process.
GreenSlate is partnering with Tax Credit Co. to provide tax credit identification, calculation and documentation services for production clients should clients request professional support. To learn more, contact us.
This information in this communication is general in nature, and is not intended, nor should it be construed, as legal, accounting, tax or other professional advice rendered by GreenSlate, LLC. The reader should contact his or her attorney, CPA, or tax professional prior to taking any action based upon this information.