The Employee Retention Credit: Essential Tax Considerations for Business Owners

Many business owners that initially did not think they were eligible for the employee retention credit for 2020 ultimately are due to either a full or partial suspension as a result of a government mandate – and the amounts may be substantial. Even for relatively short suspension/disruption of business the credits can add up quickly at $5000 per employee.

For example, a business shut down for as short of a time as six weeks could incur $60,000 of payroll for five employees during that timeframe which could result in a $25,000 credit.

As your PPP wages will impact the ERC calculations, we are recommending that most businesses hold off on filing for forgiveness until they are 100% certain they do not qualify for the ERC.

Given all of this we are recommending that they file extensions so that more guidance can be provided. If they did file the return as is and ultimately do qualify, you would need to amend your 2020 business and personal tax returns. If you do decide to go down this path, you would incur the additional fees to prepare the amended returns. As such, our recommendation is to extend your personal return until further guidance is given about the ERC.

To determine eligibility, it will likely not be a simple set of calculations as there are several variables involved. We feel strongly that many businesses will qualify for the ERC. For more information about this please click here for a detailed memo.

With offices in Williston and Rutland Vermont, Davis & Hodgdon Advisory Group has served business owners and individuals for more than 30 years by providing progressive, proactive tax and business services through expert staff, high-end technology, and unparalleled efficiency. Contact us today.


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