Employers, Here’s How RI and MA’s COVID Restriction Lifting Affects Employee Retention Credits EligibilityJune 03, 2021
Are you a Massachusetts or Rhode Island employer utilizing the Employee Retention Credit (ERC) program? Then read on as the recent lifting of COVID19 restrictions may affect your eligibility.
The recent lifting of COVID-19 restrictions in Massachusetts and Rhode Island is exciting and welcomed news for everyone. However, those employers who are utilizing the Employee Retention Credit program need to reevaluate their eligibility due to the lifted restrictions.
As discussed in previous blogs (click here), there are two ways for an employer to qualify for the ERC, either by
- A reduction in gross receipts or
- Being subject to a full or partial shutdown order from the government.
Many employers in the hospitality and retail industries in Massachusetts and Rhode Island have been using the full or partial shutdown order method to qualify for the Employee Retention Credit. Under that method, only wages paid during the period the shutdown order was in effect are eligible. Therefore, wages paid after May 21st in Rhode Island and May 29th in Massachusetts are no longer eligible for the ERC under the shutdown order method.
For those employers no longer eligible for the ERC under the shutdown order method, they will either need to cease taking the credit or evaluate if they qualify under the gross receipts method. The gross receipts method covers the entire quarter, so an entity may be eligible to qualify for the gross receipts method if their gross receipts for Q2 2021 have decreased more than 20% vs Q2 2019. If an employer who previously was qualifying under the shutdown order meets the gross receipts test, no immediate action is necessary.
For those employers currently qualifying using the shutdown order method and will not qualify under the gross receipts method, here is what you should do –
- If you are taking this credit by reducing your payroll deposits each payroll period, you will want to make sure to adjust your payroll accordingly or you will end up owing those amounts when you file your next quarterly payroll tax return.
- If you received an advance of an expected 2nd quarter ERC, you will need to recalculate your expected credit and will need to pay the difference between what you received and your actual credit on your next quarterly payroll tax return.
- If you did not do either of the above and were planning to take the credit when you filed your next quarterly payroll tax return, you do not have to do anything at this time, but will need to make sure that you do not use wages paid after the applicable dates when calculating the eligible credit.
ERC and PPP loans
Just a quick reminder that if you are an employer utilizing the ERC and have a PPP1 or PPP2 loan, please read our blog discussing the IRS’s rules on how those two programs interact (click here). Employers need to be careful that they are not using PPP funded wages when calculating the ERC.
Navigating through all of the information and programs available to impacted businesses may be overwhelming. KLR advisors are available to assist as you navigate the best path forward.
Visit our PPP Headquarters for more information.