Employee Retention Tax Credit for Airlines: How it Works and Who Qualifies

The airline industry has been hit hard by the COVID-19 pandemic, with many airlines struggling to stay afloat. In response, the U.S. government has implemented several measures to assist the industry, including the Employee Retention Tax Credit (ERTC). This tax credit is designed to help businesses keep their employees on payroll during the pandemic, and airlines are among the industries that can benefit from it.

The ERTC is a refundable tax credit that allows eligible businesses to claim up to $28,000 per employee for the 2021 tax year. To be eligible, businesses must have experienced a significant decline in revenue due to the pandemic, and they must have retained their employees despite the economic downturn. For airlines, this means that they can receive a significant amount of financial assistance to help them weather the storm and keep their employees on the payroll.

In addition to the ERTC, airlines have also received other forms of government aid, such as the Payroll Support Program (PSP). However, the ERTC is unique in that it is a tax credit that businesses can claim on their tax returns, rather than a direct payment from the government. This means that airlines can receive financial assistance without having to go through a lengthy application process, making it a valuable resource for businesses struggling to stay afloat during the pandemic.

Employee Retention Credit for Airlines

Understanding Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a refundable tax credit that incentivizes businesses to keep employees on their payroll. This credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, and has since been expanded and extended. The ERTC is designed to help businesses retain their employees during the COVID-19 pandemic and is particularly relevant to the airline industry, which has been hit hard by the pandemic.

Under the ERTC program, eligible employers can claim a tax credit for wages paid to employees from March 12, 2020, through December 31, 2021. The credit is equal to 70% of qualified wages paid during this period, up to a maximum of $10,000 per employee per quarter. This means that eligible employers can claim up to $7,000 per quarter per employee.

To be eligible for the ERTC, businesses must meet certain criteria. The business must have experienced a significant decline in gross receipts, which is defined as a decline of more than 20% in gross receipts for a calendar quarter in 2020 compared to the same quarter in 2019. Alternatively, the business must have been fully or partially suspended due to a government order related to COVID-19.

It is important to note that businesses cannot claim both the ERTC and the Paycheck Protection Program (PPP) loan. However, businesses that received PPP loans may still be eligible for the ERTC for wages that were not paid for with PPP funds.

The ERTC is a valuable tool for businesses in the airline industry that are struggling to retain their employees during the COVID-19 pandemic. By claiming this tax credit, businesses can reduce their tax liability and receive a refund for any excess credit.

Eligibility for Airlines

To be eligible for the Employee Retention Tax Credit (ERTC), airlines must meet certain criteria. This section will outline the eligibility requirements for airlines, including eligible employers and qualified wages.

Eligible Employers

Airlines are eligible employers if they experienced a full or partial suspension of operations during any calendar quarter in 2020 or 2021 due to a government order related to COVID-19. Additionally, airlines are eligible if they experienced a significant decline in gross receipts during any calendar quarter in 2020 or 2021.

It is important to note that an eligible employer cannot claim the ERTC for any wages that were paid for with a Payroll Support Program (PSP) payment. PSP payments were made to airlines under the CARES Act to help support payroll costs during the pandemic.

Qualified Wages

Qualified wages for airlines include wages paid to full-time employees during the eligible period. The eligibility period for 2020 is from March 13, 2020, to December 31, 2020. The eligible period for 2021 is from January 1, 2021, to December 31, 2021.

For airlines that had more than 500 full-time employees in 2019, qualified wages are limited to wages paid to employees who were not providing services during the eligible period. For airlines that had 500 or fewer full-time employees in 2019, all wages paid during the eligible period are considered qualified wages.

It is important to note that qualified wages do not include any wages that were paid for with a PSP payment.

In conclusion, airlines can be eligible for the ERTC if they experience a full or partial suspension of operations or a significant decline in gross receipts during any calendar quarter in 2020 or 2021 due to a government order related to COVID-19. Qualified wages include wages paid to full-time employees during the eligible period, with certain restrictions for airlines with more than 500 full-time employees in 2019.

Claiming the Credit

To claim the Employee Retention Credit (ERC), airlines must follow specific procedures and complete the necessary forms. This section outlines the steps airlines must take to claim the credit.

Forms and Procedures

To claim the ERC, airlines must file Form 941, the Employer’s Quarterly Federal Tax Return. Airlines can claim the credit on Form 941 for the calendar quarter in which they paid qualified wages. If the credit exceeds the amount of employment taxes owed, airlines can file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to receive an advance payment of the credit.

Airlines must also keep records to support their claim for the credit, including:

  • Documentation of the number of employees and their wages and hours worked
  • Documentation of the qualified wages paid
  • Documentation of the amount of qualified health plan expenses allocated to the wages
  • Documentation of the amount of employer-provided health plan expenses

Airlines must keep these records for at least four years after the date the tax becomes due or is paid, whichever is later.

Receiving the Refund

If the ERC exceeds the amount of employment taxes owed, airlines can receive a refund of the excess credit. Airlines can choose to have the refund applied to their next employment tax return or request a refund by mail.

To request a refund by mail, airlines must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. The form must be filed within three years after the date the original Form 941 was filed or two years after the date the employment tax was paid, whichever is later.

Airlines can check the status of their refund by visiting the Internal Revenue Service (IRS) website or calling the IRS toll-free number.

In conclusion, airlines must follow specific procedures and complete the necessary forms to claim the ERC. By keeping accurate records and filing the appropriate forms, airlines can receive the refund they are entitled to.

Impact of COVID-19 and Governmental Relief

The Covid-19 pandemic has had a significant impact on the airline industry, resulting in a sharp decline in passenger traffic and revenue. To mitigate the economic impact of the pandemic on the airline industry, the US government has implemented several relief measures, including the CARES Act and the American Rescue Plan Act of 2021.

CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, provided financial assistance to businesses affected by the pandemic. Under the CARES Act, airlines received $25 billion in grants and $25 billion in loans to support payroll and other operating expenses. The act also established the Paycheck Protection Program (PPP) loans, which provided small businesses with loans to cover payroll and other expenses.

The CARES Act also established the Employee Retention Credit (ERC), which provided a refundable tax credit to eligible employers that retained their employees during the pandemic. The credit was equal to 50% of qualified wages paid between March 13, 2020, and December 31, 2020, up to a maximum of $5,000 per employee. Airlines were eligible for the credit if they experienced a significant decline in revenue or were subject to a governmental order restricting their business due to the pandemic.

American Rescue Plan Act of 2021

The American Rescue Plan Act of 2021, signed into law on March 11, 2021, provided additional relief to the airline industry. Under the act, airlines received an additional $15 billion in grants to support payroll and other operating expenses. The act also extended the PPP loan program and provided funding for airports and other aviation-related businesses.

The act also extended the Employee Retention Credit until December 31, 2021, and expanded the credit to cover 70% of qualified wages paid, up to a maximum of $28,000 per employee per quarter. The act also made credit available to eligible employers that experienced a decline in revenue of at least 20% in any quarter of 2021, compared to the same quarter in 2019.

In conclusion, the COVID-19 pandemic has had a significant impact on the airline industry, resulting in a decline in passenger traffic and revenue. To mitigate the economic impact of the pandemic on the airline industry, the US government has implemented several relief measures, including the CARES Act and the American Rescue Plan Act of 2021. These measures provided financial assistance to airlines and other aviation-related businesses, including the Employee Retention Credit, which provided a refundable tax credit to eligible employers that retained their employees during the pandemic.

Potential Challenges and Considerations

Audit Risks

While the Employee Retention Tax Credit (ERTC) can provide significant benefits to businesses, it is important to be aware of the potential audit risks that come along with it. The IRS has made it clear that they will be closely monitoring ERTC claims to ensure they are legitimate. This means that businesses should be prepared to provide detailed documentation and evidence to support their claims, including records of payroll taxes, employee retention, and financial hardship.

Small and midsize businesses, in particular, may face challenges in meeting these requirements due to limited resources and expertise. As a result, it is important for businesses to work with experienced tax professionals who can help them navigate the ERTC process and ensure compliance with IRS regulations.

Impact on Small Businesses

Small employers may face unique challenges when it comes to claiming the ERTC. For example, businesses with fewer than 500 employees may not have as much flexibility in terms of reducing their workforce or adjusting employee hours to meet the eligibility requirements. Additionally, small businesses may have limited cash flow and may struggle to cover payroll costs while waiting for the credit to be processed.

Midsize businesses may also face challenges, particularly if they have already received funds through the Paycheck Protection Program (PPP). In some cases, businesses may need to choose between claiming the ERTC or PPP loan forgiveness, as they cannot receive both.

Overall, while the ERTC can provide valuable benefits to businesses, it is important to carefully consider the potential challenges and risks before making a claim. By working with experienced tax professionals and staying up-to-date on IRS regulations, businesses can maximize their chances of success while minimizing the risk of audit or other issues.

Frequently Asked Questions

Who qualifies for the Employee Retention tax credit?

To qualify for the Employee Retention Credit, a business must have experienced a significant decline in gross receipts or have been fully or partially suspended due to government orders related to COVID-19. The tax credit is available to eligible employers who retained employees during the pandemic.

How does the employee Retention tax credit work?

The Employee Retention Credit is a refundable tax credit that can be claimed on an employer’s federal employment tax returns. The credit is equal to 50% of qualified wages paid to employees, up to a maximum credit of $7,000 per employee per quarter.

How to apply for Employee Retention Credit?

Employers can claim the Employee Retention Credit on their quarterly federal employment tax returns, using Form 941. Employers can also request an advance payment of the credit by submitting Form 7200.

How does Employee Retention credit affect tax returns?

The Employee Retention Credit is a tax credit that can be used to offset federal employment taxes. If the credit exceeds the amount of employment taxes owed, the excess credit can be refunded to the employer.

What are 2 ways to qualify for ERC?

To qualify for the Employee Retention Credit, a business must have experienced a significant decline in gross receipts or have been fully or partially suspended due to government orders related to COVID-19.

What disqualifies you from ERC?

Employers who received a Paycheck Protection Program (PPP) loan are not eligible for the Employee Retention Credit. Additionally, employers cannot claim the credit for wages paid with certain other COVID-19 relief funds, such as the Restaurant Revitalization Fund or the Shuttered Venue Operators Grant.

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