Employee Retention Credit: What You Need to Know About 2021 Changes

The CARES Act brought about many changes for businesses, including alterations to the way in which employees are paid and incentivized. While these new changes were primarily designed to help businesses stay afloat during the COVID-19 pandemic, they also have serious impacts on your bottom line if you operate as an employer. In this blog, we’ll describe that impact, and cover some new procedures you’ll need to follow for filing this year.

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) was one of the several tax provisions enacted in the recently passed Protecting Americans from Tax Hikes Act (PATH), or as it’s more commonly known, the CARES Act. This provision helps employers offset the costs associated with retaining current employees—which means big news for small business owners. Through this refundable tax credit, eligible employers could recover 50 percent of up to $10,000 in wages paid to their employees after March 12, 2020, and before January 1, 2021.

How did the Employee Retention Credit change in 2021?

The most significant change to the Employee Retention Credit came about last year, when changes were made to the definition of a key term of eligibility. Under the old system, employees needed to work at least 26 weeks within one year (12 weeks with the same employer) to qualify for this credit, but new tax laws have redefined employment to reflect what’s commonly referred to as 30-day services; if an employee works fewer than 30 days within one calendar year, they may not meet all requirements necessary for qualifying. Another change that would impact tax credits is employers can now offer more than one month of paid time off, up from just three days.

New Filing Procedures

Following Notice 2021-49, tax filing procedures for tax returns that are able to qualify for employee retention credits for the 2021 tax year have changed. Contact us to discuss how this might benefit you. Specifically, we’ll discuss the Timing of Qualified Wages Deduction Disallowance and your options for filing:

Option 1: File the 2021 return that includes the ERC as is.

This means to go ahead and reduce qualified expenses for the ERC amounts for the 2021 tax return as we file, even though no ERC money has been received. Ideal prospects for this option include:

  • businesses who have cash and their future 2022 operational cash flow would not be affected by increasing the 2021 tax caused by the credits;
  • businesses who have a substantial net loss for 2021; and
  • businesses who received minimal ERC amounts, that would have minimal impact or change to the 2021 net profit.

Option 2: File the 2021 return without the ERC and amend once ERC money is received.

By doing this, you essentially treat the qualified expenses as if no ERC occurred for 2021, and once the ERC money is received, we will amend both the Company and personal returns as needed. Ideal prospects for this option include:

  • businesses that would have a substantial credit and the impact on recognizing the additional profit would be burdensome, and
  • businesses that do not want to pay additional tax without the cash from the ERC.

If you’re unsure of how this tax change will affect you, or the effects that the different filing options may have for your business, please give us a call so that we can schedule a time to discuss all of the impacts and how you can best position yourself for future success.

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Rachel McClaran, EA

Advisor

As an Enrolled Agent with more than 15 years of experience, Rachel works closely with her business and individual clients to give them the tax and accounting support they need. Outside of the office, she enjoys traveling and spending time on the water with her husband and their two children. Rachel is an active member of the Junior League of Greenville, Inc.

Hina Rogers

Payroll Specialist

Hina joined the Paysmart team in August 2022. She grew up in Portland, Oregon, before moving to Greenville, SC. She earned both a bachelor’s and a master’s degree in education. After college, she represented her alma mater as an enrollment counselor in the Southeast and Western states. She enjoys traveling, road trips, cooking, and quality time with her family. Hina looks forward to serving your company’s needs! 

Sharon Quantrille

Payroll Specialist

Sharon has spent several years in the accounting industry and has completed courses to hone her skills as a Payroll Specialist. Her background as an educator, professional musician, and Human Resources Generalist has contributed to her communication skills, commitment to professionalism, and organizational skills that make her a tremendous benefit to her Paysmart clients and colleagues. A graduate of Bob Jones University with a B.S. degree in Music Education, a Master of Music degree in Piano Performance and a Human Resources Generalist Certificate, Sharon spends her free time gardening, hiking, playing the piano, and spending time with her four adult children.

Haleigh Bates

Payroll Specialist

Haleigh joined our team in May of 2022 as a payroll specialist. Haleigh has over eight years of experience helping personal and small business clients with their financial needs. She received her Bachelor’s Degree from Georgia Southern University. She enjoys spending time with her husband and their three children, Caden, Addie, and Mason.  She likes to go hiking, spend time at the beach, and volunteer at her church in the children’s ministry. 

Courtney Rossello

Payroll Tax Manager

Courtney joined the team at Paysmart Payroll Services in September 2020.  She was raised in Simpsonville, SC, and graduated from Clemson University in 2009 with a bachelor’s degree in political science and a concentration in public administration.  Courtney began her payroll career in 2011 and currently works in the payroll tax department at Paysmart.  She strives to make every client feel comfortable knowing their payroll taxes and tax returns are handled accurately and efficiently.  Courtney is also a volunteer Treasurer for a local middle school in Greenville County.  In her spare time, she enjoys volunteering with special needs children, road trips, and spending time with her husband and two daughters. 

Emily Hargrave

Senior Payroll Specialist

Emily received her bachelor’s degree in music from West Coast Baptist College. Since her college days, Emily has gained nearly 18 years of experience in office operations and project management. Emily joined Paysmart in 2017 and enjoys using her skills to support clients and the Paysmart team.

 At heart, Emily is a small-town country girl from the Midwest but is happy now to call the Upstate home, where she doesn’t have to endure harsh winters. Emily’s favorite ways to spend her free time are reading a good book, challenging herself with puzzles, and doing her best not to kill the plants in her garden.

Julie Shull

Client Success Specialist

Julie is the Client Success Specialist for Paysmart Payroll.  She joined the team as a Payroll Specialist in March of 2020. She received her Bachelor of Science degree from NC State University and earned an MBA from Gardner-Webb University while playing on the GWU women’s tennis team. After starting her career with Wilson Sporting Goods as a Financial Analyst, she took a few years off to raise twin boys until she began working for Greenville County Schools in 2014.  Julie enjoys spending time with her family and outdoor activities.

Brad Detandt

Payroll Administrator

A graduate of Northland International University with a BA in Counseling, Brad Detandt leads the day-to-day operations of the Paysmart team. He is eager to grow the firm’s client portfolio. He brings a diverse employment background in retail, manufacturing, nonprofit ministries, and business development, with
a specialized focus on team development and process improvement. Brad’s professional – and personal – mission is to “Be Great. Serve!” Brad enjoys spontaneous activities and weekend trips to state parks with his wife Miranda and his three children.

Stephen C. Stokes

CPA | President

Stephen has more than 14 years’ experience working with individuals and businesses to meet their tax, accounting, and payroll needs. He has been the managing partner of Paysmart Payroll Services since January 2009. He is a licensed certified public accountant in South Carolina and Georgia. Stephen is also a member of the South Carolina Association of CPAs, the Georgia Society of CPAs, the American Institute of CPAs, and the Professional Association of Small Business Accountants. He has a bachelor’s degree from Bob Jones University and a master’s degree from Georgia State University. Stephen was born and raised near Atlanta, Georgia and moved to Greenville, South Carolina, several years ago. He enjoys spending time with his wife, Tiffani, and daughters, Madeline and Julianna. He is actively involved in his church and enjoys reading, sports, and other outdoor activities.