ADP Compliance Resources & IRS Guidance on the ERC

ADP Compliance Resources
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Are you familiar with the employee retention credit and how it can benefit your business? Have you previously used ADP for your business, and you aren’t sure how to go about filing your Forms or how to use their resources?

Like most business owners during the pandemic, many companies had to reduce their hours or completely shut down due to government orders. In 2020 and 2021, the government enacted several different programs to help keep employees on the payroll.

Although most of these programs have already ended, you still have the opportunity to claim this credit. Continue reading below to learn more about ADP ERC and who you can contact for more information.

What Is the Employee Retention Credit?

The government initiated the employee retention credit under the CARES Act, and it allowed employers to take a fully refundable tax credit against their Social Security tax equal to 50% of their employees’ wages. This was available after March 12, 2020, and employers could claim up to $10,000 in wages per employee. The timeframe for the eligible 

Employer Eligibility

In general, almost all businesses qualify for the Employee retention credit. This includes any 501(c) organizations, universities, colleges, and small to mid-sized companies. For employers to be eligible for the tax credit, they had to meet one of two main criteria. 

Reduced Business Hours and Operations

If you wish to utilize this credit, your business must have been either partially or fully suspended due to a government order. If your business had to reduce its business hours to accommodate a government order, your business qualifies for the credit. It is important to note that the credit only applies for the portion of the quarter that your business had to follow these orders, not the entire quarter. 

Significant Decline in Gross Receipts

If your business did not meet the first requirement, you could still qualify for the ERTC with the second test. If you had a significant decline in gross receipts, you are eligible for the Employee Retention Tax Credit.

Under the CARES act, if the business’s gross receipts are below 50% of gross receipts for the quarter, the business qualifies for the credit. If the quarter gross receipts exceed 80% when compared to the same calendar quarter in the fiscal year 2019. 

Consolidated Appropriations Act 2021 Employee Retention Credit

Under the Consolidated Appropriations Act of 2021, also known as CAA, businesses impacted by quarantines or forced closures or who saw more than 20% of a drop in their gross receipts can qualify for employee retention credits. For newer businesses, the IRS provides guidance on how to use gross receipts for the quarter in which you started if you don’t have figures from 2019. 

PPP Loans and the Employee Retention Credit

In March 2020, the CARES Act gave employers the option to take the ERC or the PPP loan. Back then, those who took the PPP were not able to take out the ERC credit. Thanks to recent legislation, businesses who took out the PPP can now claim the ERC credit.

There are a few exceptions to this rule, such as you can only claim the ERC credit on any qualified wages that aren’t counted as payroll costs under the PPP loan forgiveness program. This means that wages paid with a PPP loan that were forgiven or that you expect to be forgiven cannot be claimed under the Employee retention tax credit. If you need further guidance on this topic, you can reach out to companies such as ERC Today to walk you through the process. 

ADP IRS Guidance on 4th Quarter Procedure

The Internal Revenue System provides guidance on a “limited fourth-quarter procedure” for reporting eligible ERC wage amounts for the second and third quarters of 2020. On your original Form 941, you can report 2020 Q2 and Q3 wages on Line 13d or Line 11c in addition to any other qualified wages in the 4th quarter. 

This guidance was released in January 2020 and was due by January 31 of, 2021. There is no need to worry, though. If you wish to claim those credits, you will have to file the amended 941 Form called Form 941-X.

Revised Employee Retention Credit 2021

The Infrastructure Investment and Jobs Act extended and modified the ERTC credit. This changed the percentage of credit your business could claim on your employees’ qualified wages.

For example, for wages between January 1, 2021, through June 30, 2021, eligible employers have the opportunity to claim 70% of qualified wages instead of 50%. The wage limitation also changed from $10,000 per year to $10,000 per quarter.

Additional Changes

Employers with more than 100 employers could only claim the credit for wages paid to employees who did not receive paid time off. Employers with 100 or fewer employees could claim the credit for wages paid in addition to the time taken off. The new legislation changed the threshold from 100 to 500. 

Requesting Advance Payments

The Internal Revenue System released news that employers have the ability to access the employee retention credit for Q1 and Q2 of 2021 before filling out their employment tax returns if they reduce their employment tax deposits. Those with 500 or less full-time employees in 2019 have the opportunity to request advance payments on Form 7200 after they reduce their deposits. If you have questions about this, you can reach out to an ERTC professional for more guidance. 

Important Note for ADP Tax Filing Clients

If your business requests an advance through Form 7200, you must reconcile it with the employee retention credit, which the employer is eligible for on Form 941. It is imperative that you advise ADP of any 7200 Forms that you file to the IRS.

If you fail to do so, not only will you receive the advance payment, but you will also receive an application for the credit by ADP. Although this may not sound like a bad thing, it is actually quite detrimental. Making this type of mistake can leave you with interest payments and penalties from the Internal Revenue System. 

ADP Compliance Resources

There are several resources available for you to use at your discretion through the ADP. They tend to maintain a staff of dedicated professionals who can help you with regulatory measures that directly affect tax and benefits, human resources, and payroll administration. Although they are an excellent resource for the tasks listed above, you should always reach out to a reputable tax professional or company familiar with ERC to ensure that your paperwork is handled correctly. 

Additional Information about the ERC

As mentioned earlier, there are specific criteria your business must meet in order to qualify for the credit. There are also wages that must be considered “qualified wages” to be eligible for the employee retention tax credit. 

In general, wages or any compensation subject to FICA taxes qualify for the ERC. This also includes qualified health expenses. As we mentioned above, you can only claim this credit on wages that are not expected to be forgiven or are not forgiven under the Paycheck Protection Program. 

How to Determine Qualified Health Expenses

To determine qualified health expenses, the IRS has several different ways to calculate this depending on the circumstance. In general, they consider the employee and employer pretax paid portion, but they don’t consider any after-tax amounts. 

You also must correctly define the full-time worker based on the Internal Revenue System’s definition. Per the IRS, a full-time employee is someone that works at least thirty hours per week or one hundred and thirty hours in one month. 

Employers in Business the Entire Calendar Year

Employers who were able to stay in business the entire calendar year in either 2019 or 2020 will need to take the total sum of their full-time employees in each month of the year and divide that by twelve. 

Employers Who Started Their Business in 2019 or 2020

If you started your business in 2019 or 2020, you could determine the number of full-time workers by taking the sum of these workers that you had in each full month of the year. You will then divide that number by the number of months the business was operational. 

Employers Who Started Their Business in 2021

Businesses started in 2021 can determine their full-time employees by taking the sum of the full-time worker number and dividing it by the number of months the business was active in 2021.

CARES Act of 2020

Under the CARES Act of 2020, employers with more than one hundred employees working full time could only use qualified wages of employees who did not provide services due to a decline in business or suspension. This meant that if any employee took sick time off or vacation days, they could not use those days as qualified wages. 

On the other hand, employers with one hundred or fewer full-time employees could use all employee wages. This included time paid even if the employee was not at work. 

Consolidated Appropriations Act 2021

Under the CAA or the Consolidated Appropriations Act of 2021, it changed the number of eligible employees. Instead of it only being for businesses with less than one hundred, the CAA increased the number of qualified employees for the ERC to 500. 

Can I Include Tipped Wages as Qualified Wages?

Per the Internal Revenue System’s notice 2021-49, you can claim tipped wages if the tips were subject to FICA. This means that if an employee has over $20 in tips, then all tips are considered qualified wages for the retention credit. 

How to Retroactively Claim the Employee Retention Credit?

To apply for the employee retention credit, you must report your total qualified wages for each quarter on your quarterly employment tax returns. Be sure to include the related health insurance costs on this form as well. The form to originally claim for the ERC is Form 941

If you’ve already filed your Form 941 and you need to make amendments to it for the credit, you can file the amendment Form 941-X. 

Help with Filing the ERC

If you are unsure how to navigate the amended 941, several companies, like ERC Today, can take that burden off your hands. When filing important documents, especially ones that must go to the IRS, you don’t want to send false or incorrect information. 

When you work with a company to help you with the employee retention credit, they can help determine if your business qualifies as an eligible employer under the ERC rules. 

How else ERC Today can help you:

  • Can help determine what wages qualify for the credit
  • Can calculate your employee retention credit for all applicable quarters
  • Prepares a detailed and industry-leading report for each relevant employee

Working with these types of companies also reduces your audit risk. They are very familiar with how the Paycheck Protection Program loans interact with the rules of the employee retention credit. Other available credits could also interact with the ERC, so to ensure that you stay compliant with the IRS, be sure to reach out to a reputable company. 

Take the Burden off Filing Your ERC

As you now know, there are several different companies that you can use to help file your employee retention credit. If you’ve used ADP in the past, be sure that you reach out to them about filing your Forms 7200.

If you fail to do so, you risk receiving more credit or less credit, and there is a chance you could face severe penalties and fines from the IRS. If you need help filing your ERC amended return, contact us now. We are here to answer any questions or concerns you may have about the process, and we have resources on our blog for you to review as well. 

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More Great Information For Employers:

When President Biden signed the Infrastructure Investment and Jobs Act into law, the Employee Retention Credit sunset date was moved from 12/31/2021 date to 9/30/2021 (for businesses other than ARPA Recovery Startup Businesses). 

HOWEVER, this does not mean the ERC was eliminated! Eligible businesses can still apply for stimulus funds based on financials between 3/13/2020-9/30/2021.