Employee Retention Tax Credit for Tour Operators: What You Need to Know

Tour operators have been hit hard by the COVID-19 pandemic, with many facing significant financial losses due to the cancellation of trips and reduced demand for travel. In response, the U.S. government has introduced various measures to support businesses affected by the pandemic, including the Employee Retention Tax Credit (ERTC).

The ERTC is a refundable tax credit that is available to eligible employers who have experienced a significant decline in revenue due to the pandemic. The credit is designed to encourage employers to keep their employees on payroll, even if they are not able to work due to the pandemic. The credit can be used to offset the cost of wages and benefits and can be claimed for up to 70% of an employee’s wages, up to a maximum of $10,000 per employee per quarter.

For tour operators, the ERTC can be a valuable source of financial support during these challenging times. By keeping their employees on payroll, tour operators can ensure that they are ready to resume operations once travel restrictions are lifted and demand for travel returns. However, it is important for tour operators to understand the eligibility requirements and how to claim the credit in order to take full advantage of this support.

Employee Retention Credit

Overview of Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a refundable tax credit designed to encourage eligible employers to retain their employees during the COVID-19 pandemic. The credit is available to both for-profit and non-profit organizations, including tour operators, that experienced a significant decline in gross receipts or were fully or partially suspended due to government orders related to the pandemic.

The ERTC was initially established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 and has been modified and extended by subsequent legislation, including the American Rescue Plan Act of 2021. Eligible employers can claim the ERTC for qualified wages paid after March 12, 2020, and before January 1, 2022.

The credit is equal to 50% of qualified wages paid to each employee, up to a maximum of $10,000 per employee per quarter. This means that the maximum credit per employee is $7,000 per quarter, or $28,000 for wages paid between March 12, 2020, and December 31, 2021.

To be eligible for the ERTC, an employer must have experienced either a significant decline in gross receipts or a full or partial suspension of operations due to government orders related to COVID-19. The definition of a significant decline in gross receipts varies depending on the time period for which the credit is claimed.

The ERTC is claimed on Form 941, the employer’s quarterly federal tax return, and any excess credit is refundable. Employers can also request an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Overall, the ERTC can provide a significant financial benefit to eligible employers, including tour operators, who have been impacted by the COVID-19 pandemic.

Eligibility and Calculation

To be eligible for the Employee Retention Tax Credit (ERTC), tour operators must have experienced either a full or partial suspension of operations due to a government order related to COVID-19 or a significant decline in gross receipts. The credit is available for qualified wages paid to full-time employees during eligible periods in 2020 and 2021.

The eligibility requirements for the ERTC differ depending on the time period for which the credit is claimed. For example, for 2020, eligible employers must have experienced a full or partial suspension of operations due to a government order related to COVID-19 or a significant decline in gross receipts. For the first two quarters of 2021, eligible employers must have experienced a significant decline in gross receipts.

The gross receipts test is based on a calendar quarter comparison to the same quarter in the prior year. If an employer’s gross receipts for a calendar quarter in 2021 are less than 80% of the gross receipts for the same calendar quarter in 2019, they may be eligible for the ERTC.

Qualified wages are wages paid to full-time employees during an eligible period that meets certain requirements. For example, for 2020, qualified wages are wages paid to employees during a period of full or partial suspension of operations or during a period of significant decline in gross receipts. For the first two quarters of 2021, qualified wages are wages paid to employees during a period of significant decline in gross receipts.

The calculation of the ERTC is based on qualified wages paid to full-time employees during eligible periods. The credit is equal to 50% of qualified wages paid up to a maximum of $10,000 per employee per calendar quarter. Therefore, the maximum credit per employee for 2020 is $5,000, and the maximum credit per employee for the first two quarters of 2021 is $7,000.

In summary, tour operators may be eligible for the ERTC if they experience a full or partial suspension of operations due to a government order related to COVID-19 or a significant decline in gross receipts. The credit is based on qualified wages paid to full-time employees during eligible periods and is equal to 50% of qualified wages paid up to a maximum of $10,000 per employee per calendar quarter.

Claiming the Credit

Tour operators who are eligible for the Employee Retention Credit (ERC) can claim the credit on their Form 941, Employer’s Quarterly Federal Tax Return. The ERC is a refundable tax credit that can be claimed on the employment taxes that are paid by the employer. The credit is available for wages paid between March 13, 2020, and December 31, 2021.

If a tour operator is eligible for the ERC, they can claim the credit on their Form 941 for the quarter in which they paid the qualified wages. The credit can be claimed on the employer’s share of Social Security tax for the quarter. If the credit is more than the employer’s share of Social Security tax, the excess can be claimed as an advance payment on Form 7200, Advance Payment of Employer Credits Due to COVID-19.

If a tour operator has already filed their Form 941 for a quarter and did not claim the ERC, they can file an adjusted return, Form 941-X, to claim the credit. It is important to note that if a tour operator files Form 941-X to claim the ERC, they must reduce their deduction for wages by the amount of the credit for that same tax period. Therefore, they may need to amend their income tax return (for example, Forms 1040, 1065, 1120, etc.) to reflect that reduced deduction.

Tour operators can also claim the ERC on their adjusted employment tax return, which is Form 941 for the quarter in which they paid the qualified wages. If a tour operator has already filed an adjusted employment tax return and did not claim the ERC, they can file an amended return to claim the credit.

Once a tour operator claims the ERC, they can receive a refund check for the amount of the credit. The ERC is a refundable payroll tax credit, which means that if the credit exceeds the amount of employment taxes owed, the excess can be refunded to the tour operator.

In summary, tour operators who are eligible for the ERC can claim the credit on their Form 941 or adjusted employment tax return. If they did not claim the credit on their original return, they can file an adjusted return or an amended return to claim the credit. If the credit exceeds the amount of employment taxes owed, the excess can be refunded to the tour operator.

Potential Pitfalls and Scams

As with any tax credit, there are potential pitfalls and scams associated with the Employee Retention Tax Credit (ERC) that tour operators should be aware of. The Internal Revenue Service (IRS) has issued multiple warnings about fraudulent schemes related to the ERC, and it is important to take precautions to avoid falling victim to these scams.

One common scam involves promoters who make misleading or fraudulent pitches to businesses about the ERC. These pitches may promise large refunds or credits that are not actually available, or they may encourage businesses to claim the credit even if they are not eligible. Tour operators should be wary of any unsolicited offers related to the ERC and should always consult a trusted tax professional before making any claims.

It is also important to be aware of the penalties associated with making false or fraudulent claims for the ERC. The IRS has warned that businesses and individuals who claim the credit improperly may face civil and criminal penalties, as well as interest and other fees. Tour operators should ensure that they meet all eligibility requirements and have proper documentation before making any claims for the ERC.

Tour operators should also be cautious when working with tax professionals or other advisors who claim to be experts in the ERC. While there are many qualified professionals who can provide valuable guidance on the credit, there are also unscrupulous individuals who may take advantage of businesses seeking help with their tax filings. Tour operators should do their due diligence when selecting a tax professional and should look for someone who is experienced, reputable, and knowledgeable about the ERC.

In summary, tour operators should be aware of the potential pitfalls and scams associated with the Employee Retention Tax Credit. They should be cautious of any unsolicited offers related to the credit, consult a trusted tax professional before making any claims, ensure that they meet all eligibility requirements, and be aware of the penalties associated with making false or fraudulent claims. By taking these precautions, tour operators can ensure that they are taking advantage of the ERC in a responsible and legal manner.

Interaction with Other Relief Measures

The Employee Retention Tax Credit (ERTC) is a valuable relief measure for tour operators affected by the COVID-19 pandemic. However, it is important to understand how it interacts with other relief measures.

Under the CARES Act, businesses that received a Paycheck Protection Program (PPP) loan were not eligible for the ERTC. However, the Consolidated Appropriations Act (CAA) of 2021 retroactively changed this and allowed businesses to claim the ERTC even if they received a PPP loan. This change applies to both the first and second draw of PPP loans.

Tour operators who received a Restaurant Revitalization Grant or a Shuttered Venue Operators Grant can still claim the ERTC, but they cannot claim the credit for the same wages used to calculate the grant amount. Similarly, businesses that received a Recovery Startup Business credit cannot claim the ERTC for the same wages used to calculate that credit.

It is also important to note that wages used to calculate the ERTC cannot be used to calculate the Social Security tax credit under the CARES Act. However, wages used to calculate the ERTC can be used to calculate the payroll costs used for PPP loan forgiveness.

Overall, tour operators should carefully consider how the ERTC interacts with other relief measures to maximize their benefits.

Updates and Recent Changes

The Employee Retention Tax Credit (ERTC) has undergone several changes in recent times, including updates to the rules and regulations governing its application. The American Rescue Plan Act of 2021, signed into law on March 11, 2021, brought about significant changes to the ERTC. These changes include:

  • Extension of the ERTC until December 31, 2021
  • Increase in the credit rate from 70% to 80% of qualified wages
  • Expansion of eligibility criteria to include start-up companies
  • Increase in the maximum credit amount from $5,000 to $28,000 per employee

Additionally, Revenue Procedure 2021-33 provides guidance on the process for claiming the ERTC for the third and fourth quarters of 2021. The guidance addresses issues such as qualified wages, deduction disallowance, and the process for filing amended returns.

Employers should be aware that the ERTC is available to eligible employers who pay qualified wages after June 30, 2021, and before January 1, 2022. The credit is also available to eligible employers who paid qualified wages during the third and fourth quarters of 2021.

It is important to note that the ERTC is a refundable tax credit that can be claimed on Form 941, Employer’s Quarterly Federal Tax Return. Employers can also claim the credit on their annual tax return, Form 1040, or Form 1120-S for S corporations.

In conclusion, tour operators should be aware of the recent updates and changes to the ERTC, including the extension of the credit until December 31, 2021, the increase in the credit rate, and the expansion of eligibility criteria. Employers should also ensure that they follow the guidelines provided by Revenue Procedure 2021-33 when claiming the credit for the third and fourth quarters of 2021.

Frequently Asked Questions

How does the Employee Retention Tax Credit work?

The Employee Retention Tax Credit (ERTC) is a refundable tax credit that is designed to encourage businesses to keep their employees on the payroll during the COVID-19 pandemic. The credit is equal to 50% of the qualified wages paid to each employee, up to a maximum of $10,000 per employee for all quarters combined.

How do I apply for the Employee Retention Credit?

To apply for the Employee Retention Credit, eligible employers can claim the credit on their employment tax returns, such as Form 941. Employers can also request an advance payment of the credit by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

What are the qualifications for the Employee Retention Credit?

To qualify for the Employee Retention Credit, employers must meet one of two requirements:

  1. The employer’s business was fully or partially suspended by government order due to COVID-19 during the calendar quarter, or
  2. The employer experienced a significant decline in gross receipts during the calendar quarter.

What is the maximum amount of the Employee Retention Credit?

The maximum amount of the Employee Retention Credit is $5,000 per employee for all quarters combined. The credit is equal to 50% of the qualified wages paid to each employee, up to a maximum of $10,000 per employee for all quarters combined.

Who does not qualify for the Employee Retention Credit?

Employers who received a Paycheck Protection Program (PPP) loan are not eligible for the Employee Retention Credit. In addition, employers cannot claim the credit for an employee if they have already claimed the Work Opportunity Tax Credit or the Employer Credit for Paid Family and Medical Leave for that employee.

What are the two ways to qualify for the Employee Retention Credit?

There are two ways that employers can qualify for the Employee Retention Credit:

  1. The employer’s business was fully or partially suspended by government order due to COVID-19 during the calendar quarter, or
  2. The employer experienced a significant decline in gross receipts during the calendar quarter.

In either case, the employer must continue to pay their employees during the period of suspension or decline in gross receipts to qualify for the credit.

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