COVID-19 Resources

Decoding the ERTC [A Story of the Employee Retention Tax Credit]

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It wasn’t available to you. Now, it might be.

This was the amount. Now, the amount is different for a different year.

Here’s the eligibility criteria. Now, here’s some new criteria too.

What sounds like a befuddling riddle is actually a description of The Employee Retention Tax Credit (ERTC). It’s changed a lot in the last few months. Now, organizations who have PPP loans are able to qualify for this tax credit too. New guidelines have been established for how to claim the credit in 2020 and 2021. The extension and expansion rules have evolved.

So if your company is looking to take advantage of the ERTC, how can you make sense of the tax credit in a way that leads to claiming dollars for your business instead of scratching your head?

In this episode, ERTC advisor Cristy Andrews, CPA, CGMA explains the points of interest for this tax credit, while special guest Tim Gothard, Executive Director of the Alabama Wildlife Federation, shares the story and perspective of an organization that has utilized—and benefitted from—the ERTC.

 After listening to this episode, you’ll be able to:

  • Know the amount of the ERTC available per employee (despite common misconceptions)
  • Understand how a refundable tax credit benefits organizations
  • Recognize how laws have changed from prohibiting some organizations from claiming the ERTC to allowing them to claim the ERTC
  • Understand the basics of eligibility for 2020 and 2021—and how they are different
  • Know the two different ways your organization can qualify for the ERTC

Resources Mentioned in this Episode:

Additional Resources for Continued Learning:

Commentator: (00:00:00) Hey, I’m Paul Perry. I’m Kim Hartsock. And you’re listening to The Wrap, a Warren Averett podcast for businesses designed to help you access vital business information and trends when you need it. So you can listen, learn, and then get on with your day. Now let’s get down to business.

Kim Hartsock: (00:00:23) Hey, Paul.

Paul Perry: (00:00:24) Hey, Kim.

Kim Hartsock: (00:00:25) I am really excited about this topic today – the employee retention tax credit. I think I’ve gotten more phone calls from clients and friends about this topic than maybe anything else except for PPP last year.

Paul Perry: (00:00:39) Right and it’s just a good conversation and we want to welcome all our listeners to this discussion and, uh, look forward to a really good one today. Glad to be back with you on these projects.

Kim Hartsock: (00:00:48) Yes. Today, we are so lucky to have Cristy Andrews from our team and one of our clients, Tim Gothard. So welcome, Cristy and Tim.

Tim Gothard: (00:00:56) Great to be with you.

Cristy Andrews: (00:00:58) Yes. Thank you so much, Kim and Paul, for having us. I’m Cristy Andrews. I’m a tax partner with Warren Averett here in our Montgomery office, I specialize in partnerships and real estate. And I have been asked by the Firm to get up to date on the employee retention credit and serve as our in-house expert on that. So I’m so glad to join you today.

Tim Gothard: (00:01:23) I’m Tim Gothard. I’m the executive director with the Alabama Wildlife Federation. We’re Alabama’s oldest and largest citizens conservation organization. And our primary mission is to promote the wise use and responsible stewardship of our wildlife and related natural resources. We’ve been around since 1935 and have 20,000 members and supporters across the state. And, um, it’s quite an honor to be here with you today.

Paul Perry: (00:01:52) Tim, it’s a pleasure to listen to that mission and thank you for what y’all do for the state and for the residents of the state. I think it’s, uh, it’s a great avenue to just continue that mission throughout. And I know that we brought Tim and Cristy together today because, you know, they knew each other from a rotary group. One day, they were just having a conversation and Tim reached out to Cristy for some advice because he knew that she worked at Warren Averett and had some knowledge, as it relates to tax and partnerships and nonprofits. And so, it really opened the door for Tim and Cristy to talk and have that discussion.

And so I think it’s really important to note that building those relationships, even during what 2020 gave us, is the thing that is the silver lining for everyone. We got to build more relationships and we got to build them deeper and we got to have more good conversations. And I think that’s something that this all came out of. So I look forward to today’s discussion.

Kim Hartsock: (00:02:47) Yeah. I love to hear the connection and the relationship. Just to get our listeners off on the right foot, for those that maybe aren’t as familiar with the employee retention tax credit, it is also referred to as ERTC. The ERTC was originally a part of the CARES act, which was the Coronavirus Aid Relief and Economic Security Act, which was signed into law in March of 2020.
But there were some significant changes made to how the tax credit would be applied as part of the Consolidated Appropriations Act of 2021, which was signed into law by President Trump in December of 2020. So what we’re going to talk about is the legislation as it stands today, which we are recording this in March of 2021.
So we always want to put that disclaimer, because as we know the CARES act and all that is associated with it has been an ever-evolving piece of legislation that has had continuous changes. But, um, so I think that we just all have to step back and think about the organizations that were significantly impacted from the COVID pandemic and many nonprofits specifically, whether it was that they were unable to hold events or host people at their facility, or just a decline in contributions due to the economics of their supporters. So pieces of the CARE act, like PPP, that we’ve talked a lot about and also the Employee Retention Tax Credit were significant pieces of legislation to help organizations make it through 2020 and into 2021. Tim, I’d really love if you would just share a little bit with our listeners about the struggles of your organization and how this has impacted you.

Tim Gothard: (00:04:42) Yeah, Kim. You know, a year ago at about this time, the first implications of COVID started to show themselves through stay at home orders and things of that nature and I’ll be quite honest with you. When the first orders began to come out, things kind of went into suspended animation. We knew we’re dealing with something significant, but we really didn’t understand how long that it might last.
Well, it didn’t take very long to realize that this could be long-term, meaning this could have an effect on an entire fiscal year for us. So, one of the first things that we saw of significance was that we have large group events that we do multiple times a year, all over the state and immediately at a snap of the fingers, we couldn’t do that. Collectively, what that represented for us was over a half a million-dollar revenue stream that basically evaporated overnight. Uh, in addition to that, we have a variety of programs that have fees based with those programs. And so we have fee income and, when the schools shut now that immediately took away the fee revenue associated with some of our programs that we do with school groups and that collectively was over a quarter of a million dollars.
Within a matter of 30 days of the first shutdowns, we found ourselves coming to the grips of having to, at least, consider that three quarters of a million dollars of our normal revenue stream could be erased due to COVID. The fact of the matter is a year later, that’s exactly what happened.

Kim Hartsock: (00:06:49) Wow.

Tim Gothard: (00:06:52) So as you can imagine, when we started hearing about PPP, certainly our ears perked up as whether or not that might be a potential for us. But we’re an example of a nonprofit that the effect was immediate, drastic and quite frankly, here a year later, we’re still feeling the effects.

Paul Perry: (00:07:15) Thank you, Tim, for that real conversation about the hardships and the struggles that the Alabama Wildlife Federation went through.

Cristy Andrews: (00:07:21) You know, when Tim came to me, we’ve been long time rotaries together and friends, and Tim reached out to me and shared with me some of the struggles that 2020 had brought to them.
We discussed PPP and the benefits of having taken part in that program. And he reached out to me at the end of 2020 and just really wanted to get our assistance in preparing their loan forgiveness application. He wanted to make sure he had everything done correctly and all of the documentation included.
So he wanted to engage Warren Averett in reviewing that and assisting with that process. And so we were in the process of working through that when the last act, the Consolidated Appropriations Act passed at the end of 2020. The original CARES act stated that you could participate in the PPP program or you could participate in Employee Retention Credit.
So the majority of our clients opted to participate in PPP, and that’s really where the majority of our focus was in 2020. And so, with this latest change, you know, it revived the employee retention credit program. Once we realized that and dug into it, I realized pretty quickly that Tim could possibly benefit from that.
I reached out to him and brought it to his attention, and we started looking at it. That really is what opened up the opportunity for them to participate with the employee retention credit.

Commentator: (00:09:04) If you’re interested in learning more about the Alabama Wildlife Federation and their mission, please visit alabamawildlife.org. Now back to the show.

Kim Hartsock: (00:09:15) Yeah, Christy. That’s such a good point because I think there are even CPAs and advisors that don’t fully understand the changes and the implications. There’s been so many, as I’m mentioned at the beginning of this, that the legislation has been continuing to evolve and changes have been made.
So I think there’s a lot of confusion over what you can and cannot do, what goes together, who it applies to, who it doesn’t. You know, I’ve been very grateful for people in our firm, like you, who have taken on this piece of legislation and really dove in and read it and understand it so that you can be that expert for our clients, like Tim, to call.
I know, Cristy, you’ve talked to several of my clients, uh, about this as well. And I think that it’s very important that we are out connecting with business owners so that they know that we have that expertise and can call us to know that they don’t need to go read the 800+ page piece of legislation and follow every amendment that gets issued. But that they can just know that we have somebody in house to be able to help with that.

Cristy Andrews: (00:10:21) Kim, you know, there are really still a lot of misconceptions out there in the business community. I think with the first part of 2021 even, I think a lot of businesses understand PPP at this point. And so they were interested if they qualified for PPP, Round Two. So I feel like there’s a lot of opportunity out there for this Employee Retention Credit that a lot of businesses really just aren’t aware of.
I’ve found, in talking to many clients, that there’s a lot of misconceptions regarding the amount of the credit. The credit is, depending on whether it’s a 2020 or 2021 credit, either $5,000 or $7,000 per employee if they can reach the maximum qualified wages. A lot of business owners think it’s a total credit of $5,000 or $7,000.
So they really don’t realize how much this can impact and help their business. And also, a lot of them don’t realize it’s a refundable credit. They think it’s just a credit that can be applied against taxable income, which they don’t have right now. I think they get really excited when they realize that the credit is per employee and also, that it is a refundable credit. So they will get a check from the government.

Tim Gothard: (00:11:42) Yeah. For us, when PPP came about, that’s what really garnered everybody’s attention very quickly. And it was something that you could understand, you know, how it was designed to work. But, the Employee Retention Tax Credit was not even on our radar screen. You know, just the instructions and things of that nature for the PPP loans, you had to spend a lot of time sorting through that. But we felt like we understood that to the point to be able to do our first round application.
But then when we got to the point of looking at forgiveness, one of the things that I knew I wanted was somebody much more knowledgeable than ourselves to handle that process for us. And really my first outreach to Cristy was just that I wanted to see if they would handle the forgiveness process for us.
Because, I’ll be quite frank with you, I wanted this in a nice, neat folder. So that if an audit came up, I would just feel very, very, very strongly about it. Having worked with Cristy on some other things before I reached out to her to talk about whether that’s something that they might do, never even imagining that the ERTC is something that was going to come up.
So if I didn’t have that relationship with Cristy as a trusted advisor, we may have decided that we can handle it. You know, we might have done a little bit more work, but we could have handled PPP forgiveness ourselves.
But, uh, quite frankly, reaching out to Cristy was the best decision I made so far this year.

Paul Perry: (00:13:30) That advisor relationship, Tim, is the important thing that we always try to talk about and try to harp on building those relationships, because it’s all about trust. Everything we do in, in any profession, is about trusting others.
You already had that experience. You already had that understanding. I used to listen to a retired partner here at the firm and they always talked about drawing a circle and write anybody inside that circle that does not have an ulterior motive when they’re dealing with you. The advisor is that person because they just want you to be better.
There’s nothing personal. We’re not going to gain anything on that. We want you to be better. And that’s what I always look at when I look at that advisory-type relationship.

Kim Hartsock: (00:14:13) Yeah and, Tim, you, you aren’t alone. You know, the guidance was so significant and complicated that for most businesses, it was confusing. There was a level of distrust worried about. “Is this too good to be true? Is this a loan? They say it’s going to be forgiven. I don’t know if it’s fully forgiven. Is it going to be taxable?” There were a lot of questions about it and to have an advisor to call and rely on that you can trust was important.
Imagine if you hadn’t called Cristy and you had just gone through the PPP forgiveness and you would’ve probably gone through that fine, but not known about the tax credit. What did that do for your organization? What would have happened if you wouldn’t have known about that and wouldn’t have gotten it?

Tim Gothard: (00:15:02) Well, for us, the key thing was our employees. We knew that we had a desire to keep all of our full-time employees engaged. To make sure that our more significant part-time employees, that we were able to keep them engaged as well. But you have to look at the math. And so, we began with a thought process that we were going to do everything within our power to keep our employees engaged and if some of these opportunities had not presented themselves, that story might be very different.
Fortunately, it has allowed us to take care of our employees during this difficult time. That’s what PPP was about. You know, it’s about trying to keep your people employed.
We were even able to do the other thing that I think PPP was about as well, is being able to bring some people back. We use a lot of seasonal instructors with our education program.
COVID hit right before we would have brought them in, but we even devoted a portion of funds that we received through PPP to reach out to some of those seasonal instructors that we would normally have and and give them as much work as we could.
It was very personal to us to try to take care of our people. Uh, so PPP and the ERTC really have been key ingredients in us being able to fulfill that real kind of personal mission that we had to take care of our people during this difficult time.

Paul Perry: (00:17:05) Well, and I do want to say that it’s great to hear positive stories from PPP. With everything that’s in the news, it’s nice to see over and over again and talk to the people that it truly affected and that it truly made a difference.  That, to me, another silver lining is just the things that made a difference in people’s lives and how we all came together in some form or fashion and helped each other out.
I think that’s perfect. And I mean, Cristy, AWF would have been excluded from the CARES act in some form or fashion originally, right?

Cristy Andrews: (00:17:43) Yes. You’re exactly right. Paul, under the CARES act originally and the Employee Retention Credit, non-profits were not eligible for this credit. So, with many of the changes that were made with the Consolidated Appropriations act, one of them was it opened up this credit to nonprofits as well.
So, um, he would not have been able to benefit from it unless this legislation once changed.

Kim Hartsock: (00:18:10) Cristy, if you can just clarify for us… right now, what are the rules around ERTC?  The time period, the qualifications, what the listeners need to know if they are maybe not as familiar with the Employee Retention Tax Credit, what do they need to know about it?

Cristy Andrews: (00:18:27) Okay. So, you know, the employee retention tax credit, there’s the IRS, they change rules and they love to make things complicated. The credit, you can be eligible for 2020 or for 2021, but they’re very different and they’re calculated very differently. You have to go through a multi-step process to determine if you qualify and then what wages will qualify.

So, the first question I usually ask is: how many employees do you have? But if you’re a small employer, you can benefit by the credit a little bit more than if you’re a large employer, potentially. And that definition is different for 2020 than 2021, of course. But once you have defined, whether you’re smaller of if you’re large, then you look at if you qualify for it?
And there’s two different ways that you can qualify. If you were under a full or partial government shut down, then you qualify during that specific period that you were shut down. Or the other way that you can qualify and keep in mind, it is an either-or situation. If you have gross receipts that have decreased more than 50% for your calendar quarter compared to the calendar quarter of the previous year, that is 50% for 2020 and it’s 20% for 2021. Then you would qualify for the credit during that period.
Something else to keep in mind: some differences between the 2020 credit and the 2021 credit is the credit percentage. So for 2020, the credit percentage is 50% of a max wages of $10,000 and that is for the whole year of 2020.
They revised that and kind of sweeten the deal for 2021. They increased the credit percentage to 70% and also allow you a max wage of $10,000 per quarter. If you qualify for every quarter in 2021, you could potentially get $28,000 worth of credit per employee. So it’s definitely a great deal.
Something else to keep in mind for the 2021 credit is that they allow you to look back at first quarter 2021 gross receipts compared to either 2020 or 2019 to see if your gross receipts drop 20% or more. And then they also allow you to look back at fourth quarter of 2020 compared to fourth quarter of 2019 to see if you’re eligible.
So they really give you three opportunities to meet that qualification. And that is to look at your gross receipts for first quarter 2021, compared to first quarter of 2019 or first quarter of 2020, they also allow you to look back at fourth quarter 2020 compared to fourth quarter of 2019 to see if you meet eligibility.
Also keep in mind with PPP loan forgiveness and ERTC, remember that originally the CARES act did not allow you to participate in both. You can participate in both, but keep in mind, you cannot count wages twice. So you really will have to look at those and we’ve helped many clients do it. You can get both, potentially, you just can’t count the specific wages twice.

Paul Perry: (00:21:45) So, Tim and Cristy, we appreciate the conversation today and we appreciate all that y’all are doing related to PPP and ERTC and everything that’s going on. Here on The Wrap, we’d like to wrap it up in 60 seconds or less, what do you want our listeners to leave with. Tim? We’ll start with you.

Tim Gothard: (00:22:06) Take advantage of those professional relationships. You have to ask questions and have someone that is looking daily to see what’s available to you. It makes us more efficient. And in this particular instance, we gained more by doing so.

Cristy Andrews: (00:22:28) What I would say is that this really is a complicated calculation but I have seen many of our clients receive substantial credits when they didn’t think they were even eligible for it.
So I would just say, it’s worth the conversation to call your trusted tax advisor and have that conversation and talk it through.

Kim Hartsock: (00:22:47) Tim and Cristy, thank you so much for this conversation. I’ve really enjoyed talking with both of you and just to leave our listeners with something. We have a dedicated page on our website specific to COVID-19 resources. Very early on, we knew that this was going to be a big deal to our clients and we created a task force that focused specifically on the legislation that was coming out related to COVID and the CARES act and the subsequent pieces of legislation.
And so you can go to our website, warrenaverett.com, and click on the COVID-19 Resources button and see the latest information on all the topics that are relevant to you.
If you have any questions or want to discuss this, and maybe you’re unsure of what applies to you – please pick up the phone and give us a call. We want to be able to help you.

Paul Perry: (00:23:41) Cristy, Tim, thank you all very much. Thanks, guys.

Cristy Andrews: (00:23:41) Have a great day.

Commentator: (00:23:44) And that’s a wrap. If you’re enjoying the podcast, please leave a review on your streaming platform. To check out more episodes, subscribe to the podcast series, or make a suggestion of other topics you want to hear, visit us at warrenaverett.com/thewrap.

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