Essential enterprises were encouraged to operate throughout the pandemic and were critical to keeping the globe running; there was no intention of excluding these businesses from the ERC. Consider a medical practitioner designated as an essential company and permitted to operate under a state executive order but was barred from performing elective medical operations owing to a government decision. This employer experienced a partial stoppage of company operations and is most likely qualified for the ERC.
3. PPP loan holders are ineligible.
Many employers are unaware they can use the Paycheck Protection Program loan and the ERC. Initially, the CARES Act banned PPP loan borrowers from taking the ERC. However, the Consolidated Appropriations Act retrospectively changed this clause to allow employers who got a PPP loan to accept the ERC—just not on the same wages paid with forgiven PPP loan monies.
4. Public colleges and universities, as well as medical practitioners, are ineligible.
Many businesses in the medical and education sectors are unaware that legal changes have made them eligible for the ERC in 2021. The original CARES Act featured a governmental employer exclusion that barred governmental employers and government instrumentalities from claiming the ERC, regardless of whether they met the government orders test or the gross receipts requirement.
However, the CAA amended that provision prospectively, removing public colleges and universities and firms providing medical or hospital care from the governmental employer exclusion, making them eligible only for 2021.
5. Non-profit organizations are ineligible.
Unlike other federal tax credits, which are collected against income tax liabilities, the CARES Act recognized tax-exempt organizations as qualified employers.
6. Size influences whether or not an employer is eligible.
The classification of an employer’s headcount as small or large affects solely the types of pay considered in the ERC calculation; size has no bearing on eligibility. The ERC-qualified salaries differ depending on whether a firm is designated as a significant or small employer based on the average full-time headcount in 2019.
One significant caveat: No firm, regardless of size, can include certain sorts of payments, such as those that fall under the ERC legislation’s double dipping restriction, salaries paid to ineligible individuals, or wages that are not due to FICA.
During an eligible quarter, small companies may include all wages paid as well as qualified health plan expenses. The definition of a small employer was altered from 100 or fewer full-time employees (in 2019) for 2020 to 500 or fewer employees (in 2019) for 2021. During an eligible quarter, an employer considered significant under the CARES Act may qualify for non-service salaries and a proportionate amount of qualified health plan costs.
Conclusion
CARES Act – The aim of the ERC has not changed, but many of the original conditions have changed, leading to misunderstandings concerning credit. Given the intricacies of the ERC, it is best to consult a specialist with experience in this area when determining whether your company is an eligible employer.
