The Taxpayer Certainty and Disaster Tax Relief (TCDTR) Act of 2020 was enacted Dec. 27, 2020 to provide tax relief in the form of tax credits for eligible employers. It’s important to note the difference between a ‘tax break (or write-off)’ and a ‘tax credit.’ A tax credit is dollar-for-dollar relief on payroll taxes in this instance, where as a tax break would minimize your overall tax liability. A tax credit is extremely favorable and really encourages employers to retain workers on payroll, inline with the spirit of relief acts passed during 2020. This legislation is in effect from Jan. 1, 2021 through June 30, 2021.
It is important to understand if you qualify for TCDTR. To qualify, you must have:
- Less than 500 employees and
- Experienced a full or partial suspension of your business operations during this period (Jan. 1, 2021 to June 30, 2021) because of government orders limiting commerce, travel, or group meetings due to COVID-19, or
- A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).
If your practice has less than 500 employees and you’ve experienced a suspension of operation or an 80% or greater quarter-over-quarter decline in gross receipts during 2021 vs. 2019, then you qualify for this tax credit, which encourages you to continue keeping your employees on payroll.
The tax credit presents itself as a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages paid to employees after Dec. 31, 2020 through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum Employee Retention Tax Credit (ERC) amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.
For further questions, please contact your tax consultant.
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