Navigating Relief: Claiming Employee Retention Credits for Large Employers

The COVID-19 pandemic has significantly impacted major employers, causing revenue declines and operational disruptions. Fortunately, the Employee Retention Tax Credit (ERTC) offers crucial relief even for larger employers with over 100 full-time employees. However, more complex eligibility rules and calculations apply. This blog examines how large employers can qualify for and claim these valuable credits.

Overview of the Employee Retention Tax Credit

The ERTC helps organizations retain employees through pandemic challenges by providing a refundable tax credit for payroll costs. Key features include:

  • Credit equal to 70% of qualified wages up to $10,000 per employee per quarter in 2021
  • Applies to eligible wages paid from January 1, 2021 through December 31, 2021
  • Eligibility can be based on experiencing a significant decline in gross receipts or a full or partial suspension of operations due to a governmental COVID-19 order
  • For 2021, the maximum per-employee credit is $28,000
  • Claimed against employer payroll taxes and paid out as a refund for any excess

Larger employers can leverage this credit to offset labor costs during COVID-19 disruptions.

Qualifying Large Employers for the Credit

The ERTC applies to both for-profit and tax-exempt employers with over 100 full-time employees (FTEs), including:

  • Publicly traded and private corporations
  • LLCs and partnerships
  • Universities and hospitals
  • Unions, government agencies, and nonprofit organizations
  • Tribal businesses and gaming operations

Being a large employer does not prohibit eligibility. However, specialized rules apply.

Meeting Eligibility Criteria as a Large Employer

Companies over 100 FTEs must meet one of the following COVID-19 impact criteria:

  • Experienced a full or partial suspension of operations during any 2021 quarter due to a governmental order limiting operations.
  • Suffered a decline in gross receipts by 20% or more in a 2021 quarter, compared to the same quarter in 2019.

Examples like mandated facility closures, remote work requirements, canceled events, or reduced business levels can potentially satisfy these thresholds for larger employers.

Documenting Eligibility

Meticulous documentation is crucial to support eligibility upon IRS review, including:

  • Government orders requiring full or partial shutdowns of business operations.
  • Quarterly financial statements substantiating 20% or higher gross receipts decline.
  • Records corroborating suspensions of operations or services.
  • Documentation of COVID-19-related causes underlying eligibility.

Claiming the Credit as a Large Employer

Qualified employers over 100 FTEs follow standard procedures to claim the credit:

  • Identify which employees were fully or partially idled during eligible quarters.
  • Calculate qualified wages paid to idle employees during suspension periods.
  • Report qualified wages and health expenses on IRS Form 941 quarterly payroll tax returns.
  • Claim the credit amount to offset employer payroll tax liabilities.
  • File Form 7200 for advance payment of any excess credit beyond taxes owed.
  • Provide documentation supporting eligibility and credit computations.

Specialized Qualified Wage Rules

Complex requirements determine the wage amounts large employers can use to calculate credits:

  • Only includes wages paid to employees not providing services during eligible quarters.
  • Allows wages up to $10,000 per employee for a quarter to qualify.
  • Applies to qualified health plan expenses paid on behalf of idled staff.

Carefully applying these rules maximizes the credit benefit.

Coordinating with PPP Loans

Employers who obtained Paycheck Protection Program (PPP) loans can still claim the ERTC on wages not paid for with forgiven PPP funds. Proper tracking and coordination are imperative.

Planning for Maximum Relief

Large employers should proactively assess eligibility to optimize credits:

  • Identify all periods of shutdowns or service suspensions.
  • Review financials to pinpoint quarters with sufficient revenue declines.
  • Classify employees as fully or partially idled during each qualifying quarter.
  • Calculate qualified wages accurately based on idled hours.
  • Claim credits promptly on Form 941 for all applicable quarters.
  • Prevent duplicate claims for PPP loan forgiveness and ERTC.

Proper compliance enables maximizing this vital relief opportunity.

The Bottom Line

While special rules apply, large employers can qualify for substantial credits to provide crucial COVID-19 relief and retain valued employees. Documenting eligibility thoroughly and claiming credits accurately is key to leveraging this support.

FAQs

Q: What documentation must large employers provide?

A: Government orders showing required shutdowns, financial statements proving revenue declines greater than 20%, and records of operational suspensions.

Q: Which wages qualify for large employers?

A: Only amounts paid to employees not providing services during quarters of full or partial shutdown.

Q: Is there a limit on qualified wages per employee?

A: Yes, the credit only applies to up to $10,000 in wages per employee for a quarter.

Q: How do large employers claim the credit?

A: By reporting qualified wages on IRS Form 941 quarterly payroll tax returns and claiming the credit amount to offset taxes owed.

Q: Can PPP loan recipients also claim the credit?

A: Yes, but only on wages not paid for with forgiven PPP funds. Careful tracking is required.

Resources:

  • IRS Form 941 Instructions – Claiming Employee Retention Credits
  • IRS FAQs on Employee Retention Credit Eligibility and Claiming
  • Journal of Accountancy Guide – Large Employers and the ERTC
  • AICPA Calculator for Employee Retention Credits
  • ERTC Guidance for Nonprofits (BBB Wise Giving Alliance)

Consult a tax professional to ensure eligibility and proper claim calculations based on over 100 FTEs.

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