It has been a while since I went a full week without doing a post. Last week I was traveling all week (and won’t be home until the 23rd) and am finally getting caught up a bit.
I have gotten several emails regarding the Employee Retention Credit (ERC) and thought I would go over some details in this post as follows:
- If your gross receipts for the 4th quarter of 2020 were less than 80% of the same quarter in 2019, then you qualify for the ERC in the first quarter of 2021 even if your gross receipts did not go down by at least 20%.
- However, you then do not automatically qualify for the ERC in the second quarter. Either the first or second quarter needed to have at least a 20% reduction in gross receipts to qualify for quarter two. You can’t attribute the 2020 quarter 4 to the second quarter of 2021.
- Remember, that the ERC is no longer available for the fourth quarter of 2021 for almost all farmers.
- If you are a Schedule F farmer, you must include all gross receipts including interest, dividends, wages, and any other income when you calculate that number.
- If your gross receipts meet the reduction requirement, you automatically qualify for that quarter and the next quarter even if you do not have wages in one of those quarters.
- You have to pay cash wages to get a credit. Commodity wages do not count.
- You must follow your income tax method of accounting which means when you “report” the income as gross receipts, not necessarily if you receive cash. For example, assume you trade-in farm equipment that generates a $100,000 gain. You report that as gross receipts even though you did not get any cash.
- If you elect out of the installment method on deferred payment contracts, the gross receipt is at the time of sale, not when cash is received.
- If you received a PPP loan and used wages to get PPP loan forgiveness, you cannot take those wages and use them for the ERC.
- It is difficult for a farmer to qualify for the ERC based on a “partial shut-down”. If you are relying on a partial shut-down to get the ERC credit realize that if the credit is large enough it is likely to be audited and documentation showing how you arrived at the partial shut-down is required.
- You will be required to reduce your expenses on Schedule F in 2021 even though you may not receive the cash until 2022.
I am sure there are other questions that we did not answer here. If so, please let me know and I will do another post on those questions. Remember to claim this credit on your Form 943 due January 31, 2022.
