When the American Rescue Plan Act of 2021 was signed into law on March 11, 2021, there were two major enhancements that were made to the employee retention tax credit (ERTC). ERTC was not only extended into 3rd and 4th quarters of 2021 but the Recovery Startup Provision was added to allow recovery startup businesses to qualify for ERTC.
A recovery startup business for purposes of the Recovery Startup Provision is defined as a business who:
- Began operations after February 15, 2020 and
- Average annual gross receipts do not exceed $1 million
If a business meets the definition of a recovery startup, they are not required to meet the gross receipts test nor have been subject to a government shutdown as other businesses would be subject to in order to qualify for ERTC.
Employers that meet the criteria of a “recovery startup business” are eligible for credits equal to 70% of wages paid to each employee per quarter up to a maximum of $10,000 per quarter. Under the Recovery Startup, the total credit for an employer cannot exceed $50,000 per quarter. A business owner can take this credit in 3rd quarter 2021 or 4th quarter 2021.
ERTC is a refundable payroll tax credit that was first introduced by the CARES Act in March 2020. The payroll tax credit is claimed on the quarterly employment tax return (Form 941). If the amount of credit exceeds the employment tax deposits, the employer can apply for an advance payment of the credit on IRS Form 7200 as long as Form 7200 is filed by the filing due date of Form 941 for the specific quarter.
If you have questions about the Recovery Startup Provision or other matters that pertain to the employee retention tax credit, please contact Aaron Boker.