The Consolidated Appropriations Act (CAA), passed on Dec. 27, 2020, included significant extensions and enhancements to the Employer Retention Credit (ERC). The Coronavirus Aid, Relief, and Economic Security (CARES) Act had previously disallowed recipients of the Paycheck Protection Program (PPP) loan to take advantage of this credit. With the passage of the CAA, businesses can now potentially benefit from both the ERC and PPP loan. New and important guidance on the ERC continues to be released regularly. We invite you to join Baker Tilly’s tax professionals for a discussion on changes to the ERC and what it could mean for you and your business. Learning objectives include: Understand the CAA changes and how they may impact your business Uncover eligibility requirements including employee counts and qualifying wages Review deadlines and next steps Who should attend: Business owners, CFOs, tax directors, vice presidents of tax, tax professionals and other financial executives  Information about CPE eligibility: There are no prerequisites for this event, and advance preparation is not required. There is no cost to attend this event.  Level: Basic
 CPE credit: one (1) hour total credit 
 Field of study: Taxes

 A certificate of completion will be emailed to you four to six weeks following the event. 
 
 For more information regarding administrative policies such as complaint and refund policies, please contact Heather Eggers at +1 (608) 240 2522.  Baker Tilly US, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: nasbaregistry.org.

Roger A.  Ledbetter

Wesley  Middleton

Employee retention credit (ERC) solutions

Federal Tax

Paycheck Protection Program (PPP) Solutions

Updates to the employee retention credit

The employee retention credit (ERC) is a fully refundable payroll tax credit made available by the Coronavirus Aid, Relief and Economic Security (CARES) Act to employers, including not-for-profits (NFPs). Join our NFP specialists for a 30-minute discussion highlighting unique considerations for NFPs and what it could mean for your organization. We will discuss: The Consolidated Appropriations Act (CAA) changes and how they may impact your organization Eligibility requirements including employee counts and qualifying wages Deadlines and next steps

Not-for-Profit

Larry  Mohr

Laurie  Horvath

Not-for-profit coronavirus resources

Coronavirus recovery and growth resources

Employee retention credit updates for not-for-profits

Authored by Paul Dillon, Christine Faris, Michelle Hobbs and Michael Wronsky By the end of February, the House of Representatives is expected to pass the American Rescue Plan Act of 2021 (the Act), a combination of several bills making up the fifth stimulus legislation package designed to provide further economic relief from the continuing COVID-19 pandemic. The Senate is expected to begin discussions the first week of March when it is likely the legislation will be modified and sent back to the House. While the Act contains an increase of the minimum wage to $15 per hour, this provision was deemed to violate the Senate reconciliation rules. Additionally, other elements of the Act may not have unanimous support of all Democratic senators.  Both chambers of Congress are using budget reconciliation to pass the Act. In the Senate, this means the Act is not subject to filibuster and only a simple majority is needed to pass it. Therefore, ratification can occur without any Republican votes if no Democratic senator dissents. The final bill is expected to be signed into law by President Biden shortly after passage by both chambers. From a tax perspective, what is not included in the Act is perhaps as important as what is included. The Act contains no tax increases, including those that had been outlined in President Biden’s campaign proposals. At this time, individual, corporate and capital gains rates are unchanged, and no adjustments were made to the estate and gift tax regime. During a CNBC interview earlier this month, Treasury Secretary Janet Yellen said any tax increases sought by the Biden administration would be introduced gradually, suggesting these would come later in 2021 as part of a larger legislative package and be phased in slowly. Meanwhile, the Act does include several tax provisions such as an extension of the employee retention credit, another round of individual tax rebates and enhancements to the child tax credit. Notable nontax provisions include modifications to the Paycheck Protection Program (PPP), an increase to and continuation of the federal unemployment subsidy as well as funding for primary school and higher education institutions, and vaccine distribution.  Key provisions Employee retention credit The refundable quarterly payroll tax credit, designed to assist employers experiencing full or partial suspensions or significant declines in gross receipts in keeping employees on their payroll, was extended to apply to qualified wages paid through Dec. 31, 2021. Beginning after June 30, 2021, the credit will become a refundable payroll tax credit against the Medicare tax, otherwise known as the hospital insurance tax. Paycheck Protection Program The Act further expands the PPP to include certain internet publishing organizations (NAICS code 519130) and increases program funding another $7.25 billion. The Act also creates new eligibility for certain not-for-profit organizations with not more than 300 employees and spend less than $1 million or 15% of receipts and expenses on lobbying activities. In addition, charitable organizations can be eligible for PPP loans if they employ 500 or fewer employees per physical location. Finally, the SBA affiliation rules will no longer apply to not-for-profit organizations.  Individual tax rebates The Act provides rebate checks of $1,400 per individual (including dependents) based on their adjusted gross income (AGI) reported on their 2019 tax return (or 2020 return, if filed). Payment amounts will begin to phase out for single filers with AGI of $75,000 or higher ($150,000 for joint, $112,500 for head-of-household filers).  EIDL grants and other loan proceeds Under the Act, Economic Injury Disaster Loan (EIDL) grants as well as restaurant revitalization grants would be exempt from federal income tax. Further, similar to forgiven PPP loans, these exclusions from taxable income would not result in a loss of tax deductions for expenses funded by those grants. Child tax credit and dependent care benefits enhancements The Act increases the child tax credit to $3,000 per qualifying child ($3,600 in the case of children under age 6 as of the close of the tax year) and makes it refundable for 2021. The increased credit over the $2,000 available under prior law would phase out at AGI levels of $150,000 for joint filers, $112,500 for head of household, and $75,000 for all other taxpayers. The AGI phase out levels for the $2,000 previously available credit remain the same ($400,000 for joint filers, $200,000 for all others). The Act additionally instructs the Treasury Department to establish a program under which taxpayers will receive monthly advance payments of the credit they are due, from July through December 2021. Paid leave payroll tax credits extensions Originally provided for by the Families First Coronavirus Response Act, the payroll tax credits for providing paid sick and family leave are extended through Sept. 30, 2021. Additionally, effective for calendar quarters beginning after March 31, 2021, the limit on wages that can be taken into account for computing the family leave credit with respect to all calendar quarters in total increases to $12,000 from $10,000, and the 10-day limit on the emergency paid sick leave credit has been reset. In other words, if, as of the end of the first calendar quarter of 2021, an employer reached both of these respective limits for a given employee, they would be able to claim the family leave credit on up to an additional $2,000 of qualified family leave wages and another 10 days of the emergency paid sick leave credit for qualified sick leave wages paid to that same employee during the second and third quarters of 2021.  Unemployment benefits The federal unemployment subsidy increases to $400 per week from $300 and is further extended through Aug. 29, 2021.  Election to allocate interest expense worldwide repealed The Act repeals a provision allowing U.S. affiliated groups to elect to allocate and apportion interest expense on a worldwide basis to determine taxable income applied to foreign tax credit limitations. Section 864(f) was enacted as part of the American Jobs Creation Act of 2004, but its implementation has been deferred several times. This section is relevant in computing the foreign tax credit limitation, which is based on the amount of taxable income from foreign sources and the allocation and apportionment of deductions between U.S.- and foreign-source gross income from different limitation categories. Allocating and apportioning interest expense on a worldwide basis would generally result in increasing the ability to use foreign tax credits. Pension plan relief The Act contains provisions to assist troubled multiemployer pension plans as well as single-employer pension plans. Multiemployer plans – The Act creates a special program to allow the Pension Benefit Guaranty Corporation (PBGC) upon application by plan sponsors to make direct cash payments to financially troubled pension plans to ensure they remain solvent. Applications must be submitted by Dec. 31, 2025. Single-employer plans – The Act provides that shortfall amortization bases for plan years beginning in 2019 and 2020 would be reduced to zero. For plan years beginning after Dec. 31, 2019, all shortfalls would be amortized over 15 years rather than seven years under current law. Cost-of-living adjustment freeze for qualified retirement plans The Act contains provisions to freeze cost-of-living adjustments for certain annual limitations beginning after Dec. 31, 2030. The 2030 dollar amount would remain in effect until further notice. Defined benefit plans – The limitation on annual benefits Defined contribution plans – The limitation on contributions and other additions Compensation – The limitation on the annual compensation taken into account under the plan    The freeze on the cost-of-living adjustments described above would not apply in the case of a plan maintained by one or more collective bargaining agreements.   For more information about how these issues may affect you, connect with your Baker Tilly tax professional.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The House passed the fifth federal COVID-19 relief bill. Carrying a hefty price tag – $1.9 trillion – and facing an uphill battle as it moves to the Senate.

State & Local Government

Small Business

Federal tax coronavirus resources

International Tax

Small and family business coronavirus resources

International tax coronavirus resources

House expected to advance latest round of stimulus legislation

Employer payroll tax credits, loans, and other Consolidated Appropriations Act incentives There are numerous relief programs available to lessen the burden of employee expenses and help businesses survive. The Consolidated Appropriations Act, 2021 (“CAA”), funds the government for the next fiscal year and consists of several bills that together mark the fourth economic stimulus package designed to help taxpayers continue to weather coronavirus-related closures. The CAA extends and enhances many relief provisions that were included in the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security (CARES) Act. Each business must determine which relief programs will have the most positive impact on their business, while also ensuring the benefits they choose can work together. Baker Tilly’s coronavirus benefit coordination matrix not only explains who can use each benefit but also how each benefit coordinates with others. 
A preview of the matrix is shown below, highlighting the Paycheck Protection Program: 
Download the matrix to learn more about which benefits may help your business during this challenging time, such as: PPP – second draw loans Employee retention credit – 2021 version Emergency Paid Sick Leave credit Emergency Paid Family and Medical Leave credit  Work Opportunity Tax Credit  Emergency Economic Injury Disaster Loan R&D credit payroll tax offset

Understand Coronavirus benefit and relief programs, who is eligible and how the benefits coordinate with other programs.

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Coronavirus benefit coordination matrix

Authored by Devin Tenney and Christine Faris On Dec. 27, 2020, the Consolidated Appropriations Act (CAA) was signed into law, comprising several bills that provide continued economic relief from the COVID-19 pandemic. Chief among this relief is an extended and expanded employee retention credit (ERC), featuring sweeping changes impacting its availability both retroactively and prospectively.  Due to the prospective nature of certain notable changes to the now extended ERC, the CAA, in effect, creates an entirely new credit for 2021 that is separate and distinct from the ERC available for 2020, and appears to offer a significant opportunity for many employers. Employers are strongly encouraged to work with their tax advisors to explore eligibility in both 2020 and 2021, to ascertain if one or more opportunities are presented.  Retroactive changes The Coronavirus Aid, Relief, and Economic Security (CARES) Act incentivized employee retention by offering a payroll tax credit based on employee wages paid or incurred from March 13, 2020, through Dec. 31, 2020. However, the CARES Act prohibited Paycheck Protection Program (PPP) loan recipients from also taking an ERC. Given the immense popularity of the PPP, this limitation excluded numerous employers from eligibility for the credit. The CAA changes this by striking this prohibition from the CARES Act and allowing employers to potentially benefit from both the PPP and the ERC. The CAA also codifies certain guidance previously provided by the Internal Revenue Service pertaining to gross receipts for tax-exempt entities and treatment of certain allocable healthcare expenses such as qualified wages.  For those employers that already received a PPP loan in 2020 and are looking to take advantage of the ERC in 2020, it’s important to understand both how the credit works and that the rules remain unchanged for 2020. Broadly, the ERC is a refundable quarterly payroll tax credit against certain employer payroll taxes. The ERC is available to employers of all sizes that have experienced either (1) a full or partial suspension in their operations as a result of governmental order (Suspension Test) or (2) a significant decline (i.e., greater than 50%) in gross receipts due to COVID-19 (Gross Receipts Test).  For the 2020 credit, the amount of the credit is 50% of qualified wages paid or incurred from March 13, 2020, through Dec. 31, 2020. Qualified wages are limited to $10,000 per employee for the entire year — allowing up to $5,000 in credit per employee. Wages that can be treated as “qualified” hinge on whether an employer is a large or small employer. Specifically, large employers may only count as qualified wages those wages paid for services not rendered, whereas small employers can count all wages paid as qualified. For 2020, a large employer is one with more than 100 average full-time equivalent employees based on calendar year 2019. Additional resources and guidance pertaining to these rules can be found on bakertilly.com. Employers should be aware of two items of note pertaining to the coordination between PPP loans and the ERC: PPP loan forgiveness and the ERC are not available for the same wages (i.e., no double dipping). The mechanics for calculating the retroactively available ERC are unclear at this time. Guidance is forthcoming from the Treasury Department and Small Business Administration, which hopefully will clarify how the two benefits interact. As such, we strongly encourage waiting to pursue claiming the retroactive credit until this clarity is provided. Prospective changes (applicable to 2021 only) As discussed above, the ERC available to employers in 2021 should be treated as a different credit from its 2020 counterpart, a distinction drawn as a result of the sweeping changes that the CAA made to the ERC for the first and second quarters of 2021 only. These changes, paired with the lifting of the prohibition on PPP recipients, presents an opportunity for employers meeting certain eligibility criteria to obtain refundable payroll tax credits of potentially significant dollar value.  The following is a non-exhaustive list summarizing key changes to the ERC that are prospective only, and therefore apply only to the period of Jan. 1, 2021, through June 30, 2021: Large employer threshold increased to 500 from 100. The prior rules permitted employers with 100 or fewer 2019 average full-time equivalent employees to count all eligible wages paid as qualifying wages. That limit increased to 500 average full-time equivalent employees in 2019, greatly expanding the amount of wages many employers can treat as qualified. However, keep in mind that aggregation rules apply. Qualified wages. The limit on the amount of qualifying wages per employee increased to $10,000 per calendar quarter in 2021 from $10,000 per calendar year, for total potential qualified wages of $20,000 — double the limit in 2020.  Credit conversion ratio. The amount of the credit increased to 70% from 50% of qualifying wages, entitling employers up to $7,000 per employee per quarter in 2021 ($14,000 in total). This is a significant increase of the $5,000 limit for 2020. Gross Receipts Test relaxed for 2021. As many employers found eligibility under the Gross Receipts Test out of reach due to the greater than 50% decline in gross receipts requirement, lawmakers reduced the threshold by requiring employers to a greater than 20% decline in gross receipts compared to the same quarter in 2019. Under this change, an employer may elect to have the test determining eligibility for the quarter measure whether the gross receipts for the immediately preceding quarter are less than 80% of the gross receipts for the same calendar quarter in 2019. What is currently unknown is whether the election, once made, is permanent, requiring employers to look at the prior quarter to determine eligibility for the current quarter. Employers may still rely on the Suspension Test to show eligibility in 2021.  Based on these changes to the credit for 2021, a remarkable opportunity is presented to employers that can show they: qualify as a small employer for 2021 (i.e., 500 or fewer average full-time equivalent employees in 2019), and  experienced a greater than 20% decline in their gross receipts in the fourth quarter of 2020 and/or the first quarter of 2021 compared to the comparable quarter in 2019.  We encourage you to reach out to your Baker Tilly advisor regarding how the above may impact your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The latest round of COVID-19 relief extends and expands the employee retention credit, creating retroactive and prospective changes for employers.

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Multifamily Housing

Real Estate Investors

Real estate coronavirus resources

Updates to employee retention credit present significant opportunities for employers 

Authored by Christine Faris and Devin Tenney As we move into the final quarter of 2020, this will be a year where there has been significant legislative and regulatory impact in the areas of employee benefits and executive compensation. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 repealed the maximum age for IRA contributions and delayed the age for required minimum distributions (RMDs) to age 72. The Families First Coronavirus Response Act (FFCRA) established two new payroll tax credits, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act created the employee retention credit and payroll tax deferral to help small business employers. With all of that said, the following topics of interest will be important for you to consider for both year-end tax planning and perhaps tax planning in the coming year: 1. Maximum age for IRA contributions repealed: One of the purposes of the SECURE Act was to help individuals save for retirement. This was partly accomplished by repealing the age limit for making contributions to a traditional IRA. Prior to 2020, an individual who attained age 70½ during the calendar year was not permitted to make contributions to a traditional IRA. 
 2. Required age for RMD delayed: Another change made by the SECURE Act was to delay the age requirement to begin taking RMDs from age 70½ to age 72. The CARES Act went a step further by eliminating RMDs for 2019 and 2020. These changes allow taxpayers to retain their retirement savings in tax-favored arrangements, thus delaying income tax on the RMDs.
 3. Employer payroll tax credits for emergency paid sick leave and emergency family and medical leave: The FFCRA created the emergency paid sick leave and expanded emergency family and medical leave benefits for employees who are unable to work due to COVID-19. For employers who provide either or both types of emergency leave, the employer is entitled to refundable payroll tax credits equal to the amount of wages required to be paid under the emergency sick pay or emergency family medical leave pay requirements. The emergency paid sick leave entitles employees up to 10 days (80 hours) of sick pay at rates of up to $5,110, or $511 per day, depending on the reason for the leave. The emergency family and medical leave entitles employees up to an additional 10 weeks (40 hours per week) of pay up to $200 per day. The payroll credits are designed to offset these amounts. The credits are claimed on Forms 941, 941-X or 7200 against the employer portion of Social Security taxes (not Medicare taxes). Any credit in excess of total employer Social Security taxes on the wages with respect to the employment of all employees of the employer the excess is a refundable credit to the employer. The credits are allowed for wages paid through Dec. 31, 2020.
 4. Employee retention credit: The CARES Act created the employee retention credit (ERC) to provide assistance to employers who continue to pay their employees despite their operations being affected by COVID-19. Broadly, the ERC is a refundable quarterly payroll tax credit against certain employer payroll taxes. The ERC is available to employers of all sizes that have experienced either (1) a full or partial suspension in their operations as a result of governmental order or (2) a significant decline in gross receipts due to COVID-19. The amount of the credit is 50% of qualified wages paid or incurred from March 13, 2020, through Dec. 31, 2020. Qualified wages are generally limited to $10,000 per employee, subject to employer size restrictions. Employers may claim the ERC on a timely filed Form 941, through an adjustment with Form 941-X or in advance via Form 7200 in the same manner as the FFCRA credits discussed above. 
 5. Employer payroll tax deferral: The CARES Act permits employers to defer timely payment of the employer’s portion of Social Security tax that would otherwise be required to be made during the period from March 27, 2020, through Dec. 31, 2020, without penalty or interest charges. Employers must pay 50% of the deferred amount by Dec. 31, 2021, and the remainder by Dec. 31, 2022. Employers are not required to make a special election to be able to defer deposits and payments of these employment taxes. Deferral of the employer’s share of Social Security tax is reported on Forms 941 or 941-X.
 6. Transition relief expires on Dec. 31, 2020, to amend certain executive nonqualified deferred compensation arrangements: Prior to the Tax Cuts and Jobs Act (TCJA), the $1 million executive compensation deduction limitation applied to a covered executive until the executive had, in general, a termination of employment. As a result, if the employer expected that the company’s tax deduction would be limited due to the $1 million executive compensation deduction limitations, the employer could delay payments under the nonqualified deferred compensation (NQDC) arrangement until the limitation no longer applied. However, the TCJA broadened the scope of the $1 million deduction limitation to provide that once an executive is a covered employee, the executive will remain a covered employee regardless of employee status or death. Under the TCJA, a payment could be delayed indefinitely. Because elimination of the delay would otherwise be an impermissible acceleration of payment, the Treasury Department issued proposed regulations that may be relied upon permitting employers to amend their NQDC arrangements to eliminate the delay provision. However, such an amendment must be made no later than Dec. 31, 2020. 
 7. Extended due date for adopting a qualified retirement plan: An employer may adopt a qualified retirement plan for a taxable year after the last day of the taxable year provided it is adopted before the due date, including extensions, for filing the employer’s tax return for the taxable year. For example, an employer who wants to adopt a qualified retirement plan for calendar year 2020 has until Sept. 15, 2021, for a partnership or corporate employer, or Oct. 15, 2021, for a self-employed employer, to adopt the plan.
 8. Reminder for 401(k) plan sponsors: Long-term, part-time employee eligibility requirements take effect in 2021: For sponsors of 401(k) plans, a key upcoming change is the requirement to expand eligibility to long-term, part-time employees, effective for plan years beginning on or after Jan. 1, 2021. Under this rule, if a part-time employee has worked at least 500 hours in three consecutive years and is at least age 21 by the last day of the three consecutive year period, he or she must be offered the opportunity to make elective deferrals to the employer’s 401(k) plan. For purposes of determining whether an employee has worked at least 500 hours per year in three consecutive years, plans are not required to take into account hours of service in plan years beginning before Jan. 1, 2021. As a result, although affected plan sponsors will need to start tracking hours for this purpose beginning in 2021, plans will not be required to permit qualifying long-term, part-time employees to make deferrals under 401(k) plans before plan years starting in 2024.
 9. Pooled employer plans for retirement benefits are permitted: Unrelated employers without any commonality may pool their resources by participating in a new type of multiple employer plan (MEP). The new retirement plans, referred to as pooled employer plans or open MEP, are treated as a single plan. In addition, the “one bad apple” rule will no longer apply provided the procedure is followed for ensuring that one employer’s failure to meet the qualification requirements will not result in the disqualification of the MEP or open MEP. This is effective for plan years beginning after Dec. 31, 2020.
 10. Nonrefundable tax credit for startup costs of adopting a new qualified retirement plan: An employer with 100 or fewer employees may be eligible for a nonrefundable income tax credit for startup costs of adopting a new qualified retirement plan. The amount of the credit for a taxable year is the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. The credit is for three years. 
 11. FICA taxation rules for nonqualified deferred compensation: We are still seeing numerous instances where employers are not taking into account deferred compensation for FICA at the appropriate time. Pursuant to the FICA “special timing rule,” deferred compensation is required to be taken into account at the later of the time of the performance of services and at such time when there is no longer a “substantial risk of forfeiture” in entitlement to the benefit — this is usually at such time as the benefit becomes vested. This, of course, is in contrast to the SECA rules, that generally require the deferred compensation to be taken into account upon actual or constructive receipt of the benefit. Employers should be focused on making sure that the deferred compensation, even if not distributed, is taken into account correctly in accordance with the “special timing rule” in a setting that requires payment of FICA taxes.
 12. Proposed regulations interpreting Internal Revenue Code section 457 rules: In the summer of 2016, the Department of the Treasury issued proposed regulations interpreting section 457 deferred compensation rules which apply to tax-exempt organizations and governmental subdivisions. These proposed regulations primarily addressed issues attendant with the granting and administration of “ineligible plans of deferred compensation” under section 457(f) and are slated to become effective until following such time that final regulations have been issued. As of the time of the preparation of this letter, we have seen no activity by the current administration that would suggest that these regulations will be finalized anytime soon. Therefore, for the present, we are regarding these proposed regulations as an indication of the IRS’ interpretation of certain income tax issues attendant with the application of section 457 rules, and nothing more. -- The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

An update on significant legislative and regulatory impact in the areas of employee benefits and executive compensation. 

Private Wealth

Employee benefits and executive compensation update

Play video Our financial institution industry and Washington national tax professionals hosted a webinar to discuss the Employee Retention Credit (ERC) and how banks can access the benefits. Listen to the webinar recording to learn what is important for depository and lending operations to take advantage of the tax credit. We covered: How the ERC can be coordinated with other benefits, like the payroll tax deferral and FMLA How your bank can claim the ERC on Form 941 Situations where banks may be eligible for the ERC We also hosted a live Q&A with our attendees at the end of the webinar. The Q&A is available in the recording.  During the webinar, our Washington National Tax presenter referenced a helpful FAQ document that the IRS put together to help companies understand the ERC.  If you believe that your bank may be eligible for the ERC, contact us and we’ll talk through your current situation.

The  information provided here is of a general nature and is not intended to  address the specific circumstances of any individual or entity. In  specific circumstances, the services of a professional should be sought.  Tax information, if any, contained in this communication was not  intended or written to be used by any person for the purpose of avoiding  penalties, nor should such information be construed as an opinion upon  which any person may rely. The intended recipients of this communication  and any attachments are not subject to any limitation on the disclosure  of the tax treatment or tax structure of any transaction or matter that  is the subject of this communication and any attachments.

Our webinar covered how banks can access the Employee Retention Credit (ERC), claiming the tax credit on Form 941 and an overview of what is important for depository and lending operations.

Financial Services

Banking & Capital Markets

Community Banks 

Banking and capital markets coronavirus resources

Employee retention credit: exploring the benefit for banks

Authored by Michelle Hobbs Paycheck Protection Program The law and rules governing the PPP have been updated since this article was originally published. Please see our two-part series, PPP revisited, based on current legislation and guidance.   A widely popular lifeline for many small businesses, the Paycheck Protection Program (PPP) was enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act and replenished three weeks later in “Stimulus 3.5.” The recently passed Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) made additional changes to the program. With the principal purpose being to help employers retain their employees on the payroll, these loans are designed to now cover payroll and related expenses paid or incurred during a maximum 24-week period (recently updated from an eight-week period) that follows the date the loan proceeds are received, or from that date through Dec. 31, 2020, whichever period is shorter. Primarily, small business employers with 500 or fewer employees (affiliation rules apply) qualify for the loan program. Individuals qualifying as sole proprietors as well as independent contractors can also participate.  The PPP’s loan forgiveness component likely is the favorite feature of the program. If at least 60% of the loan proceeds are used to fund payroll expenses (with up to 40% going solely toward paying covered rent obligations, covered utility payments or interest on covered mortgage obligations), the borrower may be eligible for full forgiveness of the PPP loan. A prorated forgiveness formula is available for borrowers who do not meet the requirements for a full forgiveness of the PPP loan.  It is this forgiveness feature that raises numerous tax questions. In general, loan forgiveness results in taxable income. When loan forgiveness escapes taxation through one of a limited number of exceptions, the cost is a reduction of certain tax attributes (net operating losses, depreciable basis, etc.) belonging to the loan recipient. Regarding PPP loans, the CARES Act stipulates any PPP debt forgiveness is to be excluded from gross income. However, there is no requirement to reduce tax attributes.  Unfortunately, in a blow to taxpayers, the IRS recently released guidance indicating expenses paid using forgiven PPP loan proceeds would not be deductible. So, while the forgiven loan proceeds are not taxable, the expenses paid with those same proceeds are not deductible. Congress proposed bipartisan legislation in May to allow deductibility of permissible PPP expenses even when the associated loan proceeds are forgiven. Members of both the Senate and the House of Representatives have publicly said the current IRS guidance does not reflect congressional intent. To date, this legislation has not passed, though it may ultimately be attached to a larger stimulus or tax package.  In the meantime, the Small Business Administration (SBA) released, and subsequently updated for changes made by the Flexibility Act, the PPP loan forgiveness application along with instructions. While simple on its face — the entire package is only 12 pages — the application requires a lot of supporting data. For example, to substantiate eligible expenses, payroll records should include the number of full-time and part-time employees, payroll frequency (weekly, bi-weekly, semi-monthly, monthly, etc.), salary and leave benefits per person as well as healthcare and retirement benefits on a per-employee basis. Keep in mind, salary and wages are capped at $100,000 per employee on an annualized basis. In addition, copies of payroll tax returns, benefit plan payment invoices, and bank, mortgage interest, rent and utility statements should be retained for at least six years and made available to the lender when requested.  Recently, the SBA published a shorter version of the application, which can be used by borrowers who did not have employees at the time they applied for their loan, or did not reduce their employment levels or employees’ pay during the covered period.  Borrowers who did reduce their employment levels but can attest that they were unable to operate at pre-COVID-19 levels (due to compliance with government health and safety guidelines) are also eligible to use the streamlined form.   Self-employed individuals are eligible for PPP loan forgiveness using a formula taking either: 8/52 of line 31 of the individual’s 2019 Schedule C for an eight-week period, or Two and a half months of 2019 net profit (Schedule C, line 31), up to a maximum of $20,833, if using the 24-week forgiveness period. This limit applies in total across all of the individual’s businesses.  In other words, if an individual operates multiple businesses and files a separate Schedule C for each, the maximum loan forgiveness amount for the individual is $20,833.   For employers, the maximum amount of cash compensation eligible for forgiveness is generally limited to $46,154 per employee over the 24-week covered period in 2020 (note this maximum amount would be smaller for borrowers whose covered periods end on Dec. 31, 2020, short of 24 weeks). However, there is an additional limit on amounts paid to owner-employees or general partners, being the lesser of $20,833 or two and a half months of total 2019 compensation across all related businesses. This could further restrict the amount of owner compensation eligible for forgiveness for many taxpayers. Unfortunately, owner-employee is not formally defined, but the updated forgiveness application does refer to “owner employees of an S-corporation”. Finally, it is unclear whether other individuals would fall under this definition, if attribution rules apply, or how related-party salaries are combined when calculating the limitation.   Economic Injury Disaster Loans (EIDL) Program Separate and distinct from the PPP, the EIDL is a long-running program. Designed to help businesses, renters and homeowners located in federally declared disaster regions, the CARES Act expanded the EIDL to assist taxpayers during this COVID-19 pandemic. Taxpayers that have suffered an economic hardship due to the pandemic are eligible if they meet certain requirements: In existence on Jan. 31, 2020 Businesses with fewer than 500 employees Sole proprietors, independent contractors, most private not-for-profit organizations, cooperatives and tribal small businesses are included as businesses eligible to participate.   Due to funding limitations and the volume of submitted applications, the SBA initially restricted this program to U.S. agricultural businesses. Effective June 15, 2020, the EIDL loan program was expanded to allow more businesses and not-for-profit organizations to apply.  The CARES Act relaxed the normal EIDL rules, resulting in the following parameters:  The maximum EIDL is a $2 million working capital loan at a rate of 3.75% for businesses and 2.75% for not-for-profits with up to a 30-year term Payments on coronavirus EIDL loans are deferred for one year Up to $200,000 can be approved without a personal guarantee Approval can be based on a credit score and no first-year tax returns are required  Borrowers do not have to prove they could not get credit elsewhere No collateral is required for loans of $25,000 or less; for loans of more than $25,000, general security interest in business assets will be used for collateral instead of real estate The borrowers must allow the SBA to review its tax records  Businesses can apply for EIDL loans through Dec. 31, 2020 The CARES Act also authorized a $10,000 Emergency EIDL grant that can be used to pay sick leave, payroll, rent and mortgage payments. While the Emergency EIDL grant does not have to be repaid, it does reduce the amount of PPP loan forgiveness. Employee retention credit The employee retention credit (ERC) is a fully refundable tax credit equal to 50% of qualified wages. Applying to wages paid between March 13, 2020, and Dec. 31, 2020, eligible employers can receive up to a $5,000 maximum credit per employee (based on $10,000 of qualified wages, including qualified health plan expenses). Keep in mind, wages and related payroll taxes constituting the credit cannot also be deducted as compensation expense.  Further, the ERC is not available for wages for which the employer received a credit for paid sick or family leave under the Families First Coronavirus Response Act. In addition, wages paid to certain family members, including children, parents, aunts, uncles, among others, are not eligible for the credit. Eligible employers are those that have had business operations partially or completely shut down by government order. Otherwise known as the suspension test, qualified wages are those paid solely during the shutdown. In addition, employers can also qualify for the ERC if gross receipts for the calendar quarter in 2020 are less than 50% of gross receipts for the same calendar quarter in 2019 (gross receipts test). On the other hand, employers deemed essential, but still have a significant loss in revenue due to their customers being shut down or having to shelter in place could potentially qualify for the ERC if facts and circumstances fit the requirements.  Employers that have also borrowed using the PPP should not request advance payment of the ERC via Form 7200 (Advance Payment of Employer Credits Due to COVID-19). Currently, it is unclear whether employers can even use the ERC for periods prior to borrowing if participating in the PPP. As a result, we recommend affected employers file Form 7200 with their quarterly payroll return (Form 941). Finally, while the aggregation rules do apply to a controlled group of employers or to separate divisions, it is unclear how the suspension test would be applied if the group members operated different trades or businesses. For example, consider a brother-sister controlled group, one entity operates a restaurant and meets the suspension test while the other is a farming enterprise and does not. In this situation, it is unknown whether the entities would both be ineligible for the ERC or treated separately. We recommend each separate trade or business be evaluated individually to apply the suspension test. View more insights from our guide to tax planning during and after COVID-19
For more information, please visit our Coronavirus Resource Center.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Several programs were created or expanded, including the Paycheck Protection Program, Economic Injury Disaster Loans and the employee retention credit, to help soften the economic blow of the pandemic.

Manufacturing & Distribution

Retail

Food & Beverage

Federal coronavirus rescue programs

Authored by Devin Tenney, Paul Dillon, Michelle Hobbs, Christine Faris and Michael Wronsky This alert has been revised to reflect updated guidance provided by the Small Business Administration and the IRS. On April 29, 2020, the IRS provided guidance on the employee retention credit (ERC), by significantly expanding upon a list of “frequently asked questions” (FAQ) posted on its website. The FAQ now includes 94 questions covering an array of topics, including the determination of eligible employers and qualified wages, and how the credit interacts with other relief provisions provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and Families First Coronavirus Response Act (FFCRA).  This alert focuses on certain key areas where the IRS provided new or updated guidance.  Background The ERC is a fully refundable payroll tax credit made available by the CARES Act to employers, including not-for-profits, that had their operations fully or partially suspended as a result of a government order limiting commerce, travel or group meetings (the “suspension test”). The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis (the “gross receipts test”). The ERC is equal to 50% of qualified wages, not to exceed $10,000 per employee, paid by the employer from March 13, 2020, through the end of the calendar year. Qualified wages paid by an employer with 100 or fewer employees generally include all wages paid during the economic hardships described above; for employers with more than 100 employees, qualified wages are limited to wages paid to employees while they are not performing services. Qualified wages can also include qualified health plan expenses paid by the employer. Key takeaways from the IRS FAQ Determining eligibility under the suspension test Essential employers that have not been ordered to fully or partially shut down generally are not considered to have a suspension of operations. An employer that operates an essential business most likely will not qualify under the suspension test if the governmental order allows the employer to remain open, even though nonessential businesses being shut down by the order may have an effect on the employer’s operations. Exceptions are available for employers whose: 
1. Facts and circumstances indicate their operations have in effect been suspended due to an inability to obtain critical goods or materials because their suppliers have been shut down, or 
2. Hours of operation have been reduced due to a governmental order. An essential employer will not qualify under the suspension test solely because its customers are subject to a government stay-at-home order. Consider a gas station that is not required to close its location or suspend its operations because it is deemed to be essential. However, its business has suffered significantly because its community is under a governmental order that limits travel and requires residents to stay at home except for certain essential needs. The gas station is not eligible for the ERC under the suspension test. However, if its gross receipts declined by more than 50%, it could be eligible for the ERC under the gross receipts test.  Employers required to close their physical locations, but able to maintain comparable operations through telework are not considered to have a suspension of operations. This can have implications to an employer deemed “nonessential,” but because they are able to continue their operations remotely at a comparable level, they do not pass the suspension test. 
It is unclear what constitutes operations comparable to the business’ operations prior to the closure, but a nonessential employer would likely need to show a significant impact on their ability to perform its operations remotely (e.g., entire functions shut down or a significant reduction in the employer’s capacity to perform operations at a normal level).  It is important to note that the IRS repeatedly emphasizes during its discussion of the suspension test-related issues that employers who are ineligible for the credit on this basis may still be considered an eligible employer if it passes the gross receipts test.  Paycheck Protection Program (PPP) loan recipients are ineligible for the credit  The CARES Act provides that taxpayers cannot benefit from both a PPP loan and the ERC, but, prior to the issuance of these FAQ, it was unclear whether the ERC could be claimed for periods prior to borrowing. The FAQ states that PPP loan recipients cannot claim the ERC regardless of 1) the date of the loan, and 2) whether and when the loan is forgiven. Further, if an employer in an aggregated group is a PPP loan recipient, the entire group is rendered ineligible for the credit.  However, on May 6, 2020, the Small Business Administration updated its list of Paycheck Protection Program Loans Frequently Asked Questions to provide that employers who repay their PPP loans pursuant to a safe harbor by May 14, 2020, will be deemed to have never received the loan and, therefore, eligible for the ERC. For additional details on this safe harbor, please see our previous alert. Impact of aggregation The CARES Act provided that a controlled group of entities as determined under the Internal Revenue Code’s aggregation rules will be considered a single employer when determining eligibility for the ERC, but it was unclear on how the facts and circumstances of one or more component controlled group members would affect the group as a whole. The expanded IRS FAQ addresses several questions in this area: A single business entity operating in multiple locations whose operations have been suspended in one or more jurisdictions, but not others, will qualify under the suspension test. This could be a huge boost to employers with a national or regional presence under this circumstance, as they would qualify under the suspension test with respect to all of its operations in all locations. A single employer in a controlled group qualifying under the suspension test qualifies the entire aggregated group. The FAQ provides that an entire aggregated group’s operations are deemed fully or partially shut down, if merely one of its members’ operations are suspended by a governmental order. For example, consider a restaurant chain that is an aggregated employer group of multiple facilities in various locations. If one restaurant is ordered closed by a governmental order, the entire chain will be considered an eligible employer under the suspension test, even if multiple restaurants are located in jurisdictions not subject to any government restrictions.  The gross receipts test considers the revenue of the entire aggregated group. Consider two entities, X and Y, that are a brother-sister controlled group. Both entities had 2019 second-quarter gross receipts of $500,000. X is in an area hard hit by COVID-19, and its 2020 Q2 gross receipts were only $150,000, 30% of its 2019 Q2 figure. Y is located in an area not as heavily affected by the virus, and its 2020 Q2 gross receipts were $400,000 (80% of its 2019 Q2 figure). Despite X experiencing a significant decline in gross receipts on its own, since the group’s 2020 Q2 gross receipts were 60% of the 2019 Q2 amount, neither entity is eligible for the ERC. Determination of qualified wages For employers eligible for the ERC due to a full or partial suspension in its operations, qualified wages are limited to the period the order is in force. If the order was effective for only a portion of the calendar quarter, the employer can still claim the credit, but only for wages paid during the period the order is in force. Consider a business partially shut down by a governmental order While the business qualifies under the suspension test in both the first and second quarters, the ERC would not be available for wages paid prior to March 13, 2020, or after April 30, 2020.  Eligible employers with more than 100 employees may not treat vacation, holidays, sick days or other leave under preexisting policies as qualified wages. The IRS reasons these wages were accrued during a prior period in which the employees provided services and, therefore, cannot be considered wages while the employee did not work. Conversely, since all wages paid by eligible employers with 100 or fewer employees are considered qualifying wages, such paid leave can produce an ERC. Qualified wages are determined on a pre-tax basis. Federal income and payroll taxes withheld or imposed do not reduce an employer’s qualified wages paid. Healthcare expenses may be treated as qualified wages. Employers with 100 or fewer employees can generally allocate health plan expenses to qualifying wages paid and treat such health plan expenses as qualifying wages. The IRS updated the FAQ to provide this is true even if an employer continues a furloughed or laid-off employee’s healthcare coverage, but does not continue to pay wages to the furloughed or laid-off employee. 
Employers with more than 100 employees that furlough their workers or reduce their hours, but continue to provide them with healthcare coverage may treat health plan expenses allocable to the time that the employees are not working as qualified wages. To illustrate, a business qualifying under the suspension test reduces its employees’ hours by 50%, but continues to pay 60% of their wages and 100% of their health plan expenses. The business’ qualifying wages consist of both the 10% of wages paid to its employees while they are not working and the 50% of the health plan expenses, as they are allocable to the time the employees are receiving benefits, but are not providing services.  Final thoughts It is important to note that each section of the FAQ is prefaced with the following: “This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.” Though not primary authority, the FAQ does provide a window to the IRS’ view of the matters covered in the absence of official guidance, which we hope is forthcoming. That said, there is no guarantee that these positions will be the same as those reflected in any formalized guidance. In closing, the IRS recommends taxpayers retain records supporting their ERC computations for at least four years. We continue to review the FAQ and monitor developments in this area. Please reach out to your Baker Tilly tax advisor to discuss how these changes may impact your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The IRS issued an expanded list of frequently asked questions to help businesses that are pursuing the employee retention credit.

Real Estate

Construction

Construction coronavirus resources

IRS significantly expands employee retention credit FAQ

Authored by Paul Dillon, Michelle Hobbs, Christine Faris, Michael Wronsky and Devin Tenney  In a May 7, 2020, update to its list of “frequently asked questions” (FAQ) on the employee retention credit (ERC), the IRS revised the manner in which employers determine the amount of their qualified healthcare expenses for which the credit can be claimed. In a significant taxpayer-favorable development, eligible employers that continue to provide their employees with healthcare coverage can now claim the ERC for these costs regardless of whether the employees continue to receive a salary.  This development marks a reversal of the IRS’ previous stance that only healthcare expenses allocable to employee wages could produce the credit. Lawmakers were quick to rebuke this position, saying it did not conform to congressional intentions behind the ERC, which include incentivizing employers to continue to provide its workers with healthcare coverage during the pandemic.  To illustrate the effect of this change, consider an employer whose operations have been shut down due to a government order. In response, the employer furloughs all of its workers, stops paying their salaries but continues to provide them with healthcare benefits. Based on the IRS’ prior guidance, none of the employers’ costs would have factored into its ERC calculation because there were no qualifying wages related to the associated healthcare expenses. Now, all of the healthcare costs can be considered in determining the credit, as they were provided while the employer’s operations were suspended pursuant to the government order. Note that in the case of an employer with more than 100 employees, the costs must also be attributable to a period during which its workers are not providing services. In this example, that test would be met as the employees were furloughed outright.  For more background and details on the ERC, please see our previous tax alert, which has been revised to reflect this change. The complete FAQ is posted on a dedicated IRS webpage.  Please reach out to your Baker Tilly tax advisor to discuss how these changes may impact your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The IRS is now allowing employers that continue to pay healthcare coverage for their employees to claim the employee retention credit for these costs – even if those employers aren’t continuing to pay their employees a salary. 

Healthcare & Life Sciences

Healthcare provider coronavirus resources

IRS expands allocable healthcare expenses eligible for employee retention credit

The extended and expanded employee retention credit (ERC) from the Consolidated Appropriations Act (CAA) could have significant benefits for you and your business. However, the regulations surrounding the ERC tend to be fact specific and tedious. Baker Tilly has a put together set of comprehensive resources available to assist businesses that are considering taking advantage of the ERC.

New guidance is being released regularly. Contact our ERC specialists to learn if you qualify for the ERC.

Baker Tilly can help you navigate the extended ERC

erc-update-per-caa-feb2021.pdf

Employee retention credits as updated by the Consolidated Appropriations Act, 2021 (CAA)

The CAA made several significant employer-friendly changes to the ERC and have effectively created two separate versions of the credit, one for 2020 and another for 2021. We have developed a flowchart that outlines the differences between the two and guidance on how to determine eligibility. 

Each business must determine which relief programs will have the most positive impact on their business. Baker Tilly’s coronavirus benefit coordination matrix not only explains who can use each benefit, but how each benefit coordinates with others.

A preview of the matrix is shown below, highlighting the 2021 employee retention credit.

Join Baker Tilly’s tax professionals for a discussion on changes to the ERC and what it could mean for you and your business.

On Dec. 27, 2020, the Consolidated Appropriations Act (CAA) was signed into law. The CAA contains several bills that provide continued economic relief from the COVID-19 pandemic, including an expanded employee retention credit (ERC).

Updates to employee retention credit present significant opportunities for employers

For more information or to learn how Baker Tilly specialists can help, reach out to your Baker Tilly advisor or contact our team.

Baker Tilly has developed a set of comprehensive resources that are readily available to assist businesses that may be eligible for the employee retention credit (ERC).

Employee retention credit (ERC) opportunities

Baker Tilly’s tax team contributes to clients’ success by accelerating tax deductions, increasing tax credits, reducing cash taxes and mitigating risks.

Baker Tilly offers specialized federal tax compliance and planning expertise to help businesses optimize value while minimizing their tax burden.

Baker Tilly has developed a comprehensive set of solutions that are readily available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the PPP.

Employee retention credit (ERC) solutions

House expected to advance latest round of stimulus legislation

Coronavirus benefit coordination matrix

Updates to employee retention credit present significant opportunities for employers

Employee benefits and executive compensation update

Employee retention credit: exploring the benefit for banks

Federal coronavirus rescue programs

IRS significantly expands employee retention credit FAQ

IRS expands allocable healthcare expenses eligible for employee retention credit

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Federal Tax

Paycheck Protection Program (PPP) Solutions

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Updates to the employee retention credit

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Employee retention credit updates for not-for-profits

Baker Tilly can help you navigate the extended ERC

Employee retention credits as updated by the Consolidated Appropriations Act, 2021 (CAA)

Download the flowchart

Coronavirus benefit coordination matrix

Download the coronavirus benefit matrix

Updates to the employee retention credit

Updates to employee retention credit present significant opportunities for employers