The IRS Releases Guidance on Retroactive ERC Termination
This week the IRS released its guidance regarding the retroactive termination of the Employee Retention Credit (ERC). Officially retroactively terminated with last month’s signing of the Infrastructure Investment and Jobs Act, the ERC now applies only to wages paid before October 1, 2021. The only exception is recovery startup businesses (generally, businesses started after February 12, 2020, with less than $1M in annual sales).
We’ve discussed this disheartening move in previous communication, but the long and short of it is that if you’ve claimed ERC deposits for any payments after September 30, 2021, including any advance payments, you’ll need to prepare to return those funds. Failure to deposit penalties are not waived if deposits are reduced after December 20, 2021.
Here’s the IRS’s breakdown:
Employers who Received Advance Payments
Generally, employers that are not recovery startup businesses and received advance payments for fourth quarter wages of 2021 will avoid failure to pay penalties if they repay those amounts by the due date of their applicable employment tax returns.
Employers who Reduced Employment Tax Deposits
Employers that reduced deposits on or before December 20, 2021, for wages paid during the fourth calendar quarter of 2021 in anticipation of the Employee Retention Credit and that are not recovery startup businesses will not be subject to a failure to deposit penalty with respect to the retained deposits if—
The employer reduced deposits in anticipation of the Employee Retention Credit, consistent with the rules in Notice 2021-24 PDF,
The employer deposits the amounts initially retained in anticipation of the Employee Retention Credit on or before the relevant due date for wages paid on December 31, 2021 (regardless of whether the employer actually pays wages on that date). Deposit due dates will vary based on the deposit schedule of the employer, and
The employer reports the tax liability resulting from the termination of the employer's Employee Retention Credit on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021. Employers should refer to the instructions to the applicable employment tax return or schedule for additional information on how to report the tax liability.
Maryland Relief Grant Applications Open 3/30 at 9am
Business Clients in Maryland -
I wanted to send a quick notice to small business clients in Maryland that applications for the Maryland Small Business COVID-19 Relief Grant Program will open tomorrow morning at 9am. Harmony Group is not legally allowed to apply to this grant on your behalf (as the State says it will reject applications not signed by someone legally able to bind your company), so we highly encourage any clients that believe they’re eligible to set a calendar reminder/alarm and submit their applications first thing in the morning.
The applications will be available tomorrow morning at the following website:
https://commerce.maryland.gov/fund/small-business-covid-relief-grant-program
This program only has $10,000,000 allotted to it, so it is anticipated that the money will be allocated to businesses that apply tomorrow morning. If you do not have a copy of your 2019 business tax return handy, please login to your Harmony Group Canopy portal to download it or email the tax administrator at admin@harmonycpa.com. Full details of grant eligibility and application requirements are below.
Best Regards -
Matt
GENERAL TERMS AND CONDITIONS
Eligible applicants must be a Maryland based for profit business which primarily engage in non tangible services not subject to the Maryland sales and use tax.
Must have between 1 and 20 employees;
Must have at least 1 W2 employee and the business must have an active account with the Maryland Department of Labor’s Division of Unemployment Insurance;
Must demonstrate a 25% or greater reduction in revenue adjusted for COVID-19 costs such as sanitation, PPE in 2020 over 2019;
Must be established prior to March 9, 2020;
Must be registered and in good standing with Maryland SDAT;
Applicants who did not receive a COVID-19 Business Relief Grant or Loan will be prioritized over applicants which received a COVID-19 Business Relief Grant or Loan from the Maryland Department of Commerce;
The applicant, affiliates, subsidiaries, and parent company of the applicant must have combined revenues less than $5 million in 2020;
Economically disadvantaged applicants as defined by personal net worth of $750,000 or less, adjusted gross income of $350,000 or less, and $6 million or less in assets will be prioritized;
Business must have an eligible NAICS code as defined and categorized by North American Industry Classification System;
Applications will be prioritized by industries most impacted by COVID-19;
Business must currently be in operation;
Business must have a physical Maryland location;
Funds will be distributed to the extent practicable by Commerce, among the counties based on population; and
Your application will be rejected without further review if the application is incomplete and not signed by a person with authority to bind your business.
APPLICATION
To apply, a business must complete the application provided on here starting March 30. At minimum, a completed appliation must provide:
A valid Maryland unemployment insurance number and proof of at least one W2 employee, which may include the owner;
2019 Federal Tax Return or 2019 Profit and Loss/Income Statement prepared in house or by a CPA;
2020 Federal Tax Return or 2020 Profit and Loss/Income Statement prepared in house or by a CPA;
Certificate of Good Standing with Maryland State Department of Assessment and Taxation;
Business NAICS code as defined and categorized by North American Industry Classification System;
An explanation of how COVID-19 has impacted your business and the purpose of the grant;
As part of the application, you will be asked to provide a list of specific expense items such as rent, fixed debt payments (p+i), payroll expenses, other taxes and fees, utilities, equipment repairs, supplies, and other cash expenses.
The SBA Defers All EIDL Payments Until 2022
The SBA has announced that it will defer all Economic Injury Disaster Loan (EIDL) payments until 2022. Payments were initially due 12 months from the date of the note, and this deferral applies in two ways, depending upon which calendar year the loan was made:
If your SBA disaster loan was made in 2020, the first payment's due date has been extended another 12 months, to 24 months from the date of the your note.
If your SBA disaster loan was made in 2021, the first payment's due date has been extended another 6 months, to 18 months from the date of the note.
This will of course affect most of our business clients, and Harmony Group will be there to advise - we're expecting the rules to continue to change over time and further forgiveness is possible. We'll continue to update you as the SBA continues to update all of us.
You can read the full text of the SBA’s update intheir press release about the deferments.