Alive and Well: The Employee Retention Tax Credit 2022

In this week's episode, we listen in on a recent presentation that Travis gave to help better inform people about the Employee Retention Credit.

Follow along with Travis and his presentation by checking out the slides by CLICKING HERE: https://docs.google.com/presentation/d/1HaboSXfWFJdb4jcQzvNDVAQcebwNg6aJsTJK8FX_0Hg/edit?usp=sharing 

Transcript

LINK TO SLIDES: https://docs.google.com/presentation/d/1HaboSXfWFJdb4jcQzvNDVAQcebwNg6aJsTJK8FX_0Hg/edit?usp=sharing

Hey everybody. Travis Watkins here giving you some information on the Employee Retention Tax Credit. This is called “Alive and Well, the Employee Retention Tax Credit 2022.” And really this was meant for practitioners really to help their clients get going on the Employee Retention Tax Credit. But I think it'll work just as well for consumers. So bear with me, but let's get started. What's the ERTC? The ERTC is a refundable tax credit that rewards businesses who kept employees during the COVID 19 pandemic up to $26,000 per employee. You can get the credit retroactively for “qualified” wages. You can tell that's a defined term here since it's in quotes, we'll get into that, including certain health insurance costs paid to employees. There was some confusion. There may still be some confusion for folks that have probably heard some advertising, maybe on the radio or on television about the ERTC and I'll let you know kind of what the sources of those confusion are.

March 27th, 2020, this came out right alongside the PPP. It ran March 12th, 2020 through December 31st, 2020. It was not available to recipients of the Paycheck Protection Program Act when it first came out. So that was a big issue. There was a feeding frenzy, if you'll recall, from PPP. Everybody was just trying to get a hold of that thing. They were not so focused on what was going on with the ERC. So that caused a little bit of confusion. You used to report it on IRS 7200, which was a credit really, or you could ask for it in advance. Under that, nobody really understood that thing either. You had to have less than 100 full-time employees in its first machination. Then on December 27th, 2020, the Consolidated Appropriations Act came along, which extended the ERC to June 30th, 2021. So the first half of 2021 extended the ERC and they also added up to 500 full-time employee or full-time employee equivalents, and you could now use unforgiven Paycheck Protection Program money in ERC calculations.

So that's huge. That's the biggest part of the CAA changes was that now you can receive both PPP and ERC. That cleared up some confusion, but still not a super popular program even at this point. December 27 of 2020. Next change was an IRS notice 2021-20 and 2021-23 that came out in March or April of 2021. It defined a partial shutdown as something that could be added to your ERC calculation for disruption to the supply chain. And we can only assume that what's going on here with these changes, they're broadening the number of eligible employers and not enough people were taking the ERC. This was a huge earmarked pot of money. They added this definition to partial shutdown to add disruption to supply chain and who didn't have a disruption to the supply chain. But we'll get into that here shortly.

Also, these two notices offered a bunch of examples, but little guidance on much other than these examples. They cover everything with this prophylactic type of language saying that “it's dependent on the facts and circumstances of each case will rule.” So not just a ton of supply chain help there, but we'll get into that more and more here in this presentation. March 11th, 2021, the American Rescue Plan Act came along with the ARPA and extended the ERC again from the middle of 2021 until the very end of 2021. Then November 15th, 2021, the Infrastructure and Investment Job Act came along the IIJA, essentially they were like, so oh, we were just kidding about that thing. For everybody being able to, every employer to, to be able to claim this until the end of 2021. We better cut this thing off because it could be huge. They ended the ERC with this legislation to effectively September the 30th or Q3 of 2021, unless you were a startup business defined as a business established after February 15th, 2020.

Okay, So that puts the parameters of this really for March the 12th of 2020, all the way to the end of the third quarter of 2021 for most employers who are not startups. Then this little curious thing came along January 31st, 2022, when you go to pull up that form 7200 that you used to ask for in advance or, or a claim on the credit. Now it has this, this thing that's still on their irs.gov. States do not file form 7200 after January 31st, 2022. The last day to file form 7200 advanced payment of employer credit due to covid 19 was January 31st, 2022. So form 7200 remains on irs.gov only as a historical item at whatever, whatever forms, and that was revised. That message was revised as of April of 2022. So got the little scratching your head guy here, pensive. Look, we've had a lot of confusion here with folks thinking, well, since 7200 has been retired, I guess that's the end of everything. And now all the quarters where you could ask for ERC are over. So, begs the question, is ERC dead? And I say, the reports of ERC's death have been greatly exaggerated. That's because it is still alive and well. Now you file the ERC on IRS form 941 X, that's the quarterly amended payroll tax return or claim for refund. And this thing has been revamped. And I can show you that. Let's take a look at that real quick because I think it's important to see that It is still alive and well. This one was revised April, 2022, 941 X. That's the thing that you're going to file. You've already filed an original 9 41, and you'll see here that it talks about refundable qualified wages for the Employee Retention Credit there at 26 A. So that's where everything's going to get reported now. So these have been changed significantly. The 941 X to now include this ERC credit. All right? So ERC does not dead sunset provisions. However, how much time is left to take this thing? The rule on this is three years from the original due date or when filed, whichever is late said later. and note that Q1 2022 2020, excuse me, only runs from 3 13 20 to 3 30 20, essentially like two weeks in a day.

And if you were claiming anything for Q1 2020, you would actually drag it over to Q2 of 2020. So here's the dates just to have them handy. Q2 of 2020 was due July, the 31st of 2020. And with the 941 X three year rule, that moves things to July 31st of next year, 2023. So that's when it'll start essentially phasing out. Q3 of 2020 was due October, the 31st of 20, and it'll be now due at the end of the third quarter. Next year, Q4 will be the first quarter of, or excuse me January 31st, 2024, the following year, Q1 of 2021 would be due at the end of Q1 2024, Q2 of 21 at the end of second quarter.

Q3 of 21 at the end of Q3 of 24, and that's really the end of it for most employers. If you were a startup, again, three years from when that was due, July January 31st, 2025. So in other words, there's still time to qualify for the ER and the C. All right, So what is this thing? What is a qualified employer under the IRC? Help came in IRS notice, 2021 dash 20 defines it well says under section 162. And activity does not qualify as a trade or business unless its primary purpose is to make a profit and is carried on with regularity and continuity. The facts and circumstances of each case determine whether an activity is a trade or business. There we go again, facts and circumstances of each case. Squishy standards. A taxpayer does not necessarily need to make a profit in any particular year in order to be in a trade business as long as good faith, profit motive is present. So not nearly the standard that you would face like in a hobby situation under an audit. Pretty, pretty open standard here. For purposes of the Employee Retention Credit. A tax ex tax exempt organization described in 5 0 1 C of the code's exempt from tax under Section 5 0 1 A is deemed to be engaged in trader business with respect to all operations of the organization. So includes tax exempt charitable more guidance on the eligible employer rule under IRS 20 21 20. They say a government governmental instrumentality does not qualify, and there are governmental instrumentality tests in 2021 dash 20 if you're interested in that. Tribal governments, tribal entities do qualify.

A US territory employer qualifies, a self employed individual with no employees does not qualify, and now that's different than the paycheck protection program. So be careful about that issue. Self-Employed individuals are not going to qualify. That's always hurdle number one. And lots of questions that we get about this from employers or from businesses in general, not employers, is do I qualify if it's just me, just the owner? And the answer to that is no, you've got to have employees on this, and we'll hit some more of that as we go along here. But rule number one, got to have employees. And the thresholds here it's up to 100 full-time employees or their equivalents for the 2020 year. When you're trying to qualify quarters under 2020, you got to have less than a hundred. But if you'll remember from, from our discussions of the legislation here that confused some people, they have jacked that up to now 500 employees or employ full-time employee equivalents for 2021.

So 100 is the max for 20, 2500 is the max for 2021. Just be aware of what they call aggregation rules. All entities that are members of a controlled group of corporations or trades or businesses under common control under section 52 A or B of the code members of an affiliated service group under section four 14 m of the code or otherwise aggregated under four 40 of the code, are treated as a single employer for purposes of applying the Employee Retention Credit. As a result, employers required to be aggregated are treated as a single employer for purposes of the following rules applicable to the Employee Retention Credit. You're going to use aggregation rules when determining whether the employer has a trader business operation fully or partially suspended due to orders related to covid 19 from an appropriate governmental authority determining whether the employer experiences a decline in gross receipts, determining whether the employer averaged the 100 or 500 full-time employees and determining the maximum credit amount.

So for those things, you are going to group or aggregate them all into one employer for determining those things that I just listed off. Next issue is what quarters are going to qualify under the ERC. First of all that, and there's, there's really three of these things. I've broken 'em down into two, but the, the first thing you want to look for on quarters with an employer is, first of all, did they experience a shutdown due to a documented, And that's important, documented governmental order at the Fed state or local level, and it can be full or partial, and again, documented as a very important part of that sentence. In other words, it doesn't mean just simple saber rattling by a mayor or governor or anything other than an actual order from some government official on a federal, state, or local level that there is a or, or was to be a full or partial shutdown for that quarter.

No partial shutdown has experienced, as I mentioned before, from some of the guidance there at the IRS, has experienced a little bit more clarification in some ways, but it's still pretty squishy in other ways. And here's what this is where the concept of supply chain disruption comes in. A partial shutdown of operations due to a direct impact of covid 19 orders. Limiting commerce, travel or group meetings on a more, the nominal portion of the trade or business, a nominal portion has been defined now as greater or equal to 10% of that trade or business. So what it's saying is that even if the business wasn't itself completely or partially shut down, there's something in the business that was inhibited by a governmental order. Typically a vendor sometimes the customer or client themselves may bear on that issue as well. What you're looking for is some part of the business, though that's represents 10% or more of the trade or business that experienced some type of a limitation in regard to commerce, travel, or group meetings there.

And this one is also defined, again, as a facts and circumstances type of analysis. In other words, it's going to be a squishy fact that each case are unique if ultimately called to the carpet in a god forbid and audit as it relates to this. And we'll talk a little bit more about that as well, too. The second type of hurdle, and this one is probably the most common, the one that you've probably heard of the most is decline in gross seats. And what that means is that, that you, you experienced some type of a decline in gross receipts, and the standards for this are measured differently for 2020 than they are for 2021. 2020, you're going to take the quarter that you're looking at and you're going to compare that quarter to 2019. Same thing for 2021. You compare the commensurate quarter that you're looking at for 2021 with that same quarter for 2019, and it's either going to be a 50% decline for 2020 or a only a 20% decline for 2021. And we'll look at that too. Here it is, 2020 significant decline in gross receipts calculated by determining the first calendar quarter in 2020, if any, in which its employers gross receipts are less than 50% of its gross receipts for the same quarter in 2019.

And then there's this cool little rule here. If the gross receipts decline to that extent, the employer also must determine if there is a later calendar quarter in 2020, in which the employer's 2020 quarterly gross receipts are greater than 80% of its gross receipts for the same calendar quarter in 2019. If so, the significant decline in gross receipts ends with the first calendar quarter that follows the first calendar quarter in which the employer's 2020 quarterly gross receipts are greater than 80% of its gross receipts for the same quarter in 2019, or with the first calendar quarter of 2021. What does that all mean? This is a great rule. What it means is that if once you've identified a 50% decline quarter for 2020, and this doesn't work for 2021, just 2020, but what you find that you're going to continue to be able to use the following quarter until there's a recovery by the business in gross receipts of more than 20% decline, 80% of gross receipts.

So let's say Q2 qualifies under this decline in gross receipts for 2020 after you've compared it to 2019. Let's say you're at 50% and the next one is at 83%. Then you would also include Q3 in that one and stop there. It could conceivably run into q2. It could run into Q3 under this rule. It could also run into Q4 as long as there is not an 80% or more gross receipt recovery. So kind of a cool little known thing there in the calculations if you're coming in qualifying yourself or your client with the decline in gross receipts rule. All right, let's look at 2021. That this is, this is the example that I just went through. Employer's gross receipts were a hundred thousand, 1 92 30 for the first, second, and third calendar quarters respectively. You can see there, it's, it's exactly what I just said. Employer had a employer had a significant decline in gross receipts convincing on the first day of the first calendar, quarter 2020 because of the 50% rule and ending on the first day of the third calendar quarter 2020 in that example, because of the 83% they finally had recovered, then you're going to get it for Q3 and stop there.

2021 as promised, the significant decline in gross receipts is calculated by determining the first calendar quarter of 2021, if any, in which an employer's gross receipts are less than 80% of its gross receipts for the same calendar quarter 2019. So in other words, this is a much easier at least if you're coming in under gross receipts type of qualifications, it's a, it's an easier standard to qualify your 2021 quarters because it's not 50%, It's only at 20% decline in gross receipts. All right? Since it's 80%, that little extra 80% rule doesn't, doesn't apply if, if you've got three quarters in a row that are 80%, you're going to get all three quarters of 2021 as compared to 2019. If you're coming in under a significant decline in gross receipts rule. Now, you can come in under different types of rules to qualify your clients. So if they didn't qualify under significant decline in gross receipts, you can go do the fuller partial shutdown. And in the partial shutdown, remember that squishy standard can include those supply chain issues. Okay?

Already, already looked at that one. All right, here's a little more clarification on what is supply chain disruption. It applies to any or all points in a company. Supply chain may have been impacted by a government issued COVID 19 order, which in turn impacted the company itself by eliminating its commerce traveler group meetings. And here's some things to look at. The sourcing point, a manufacturer produces the goods. If you had a governmental covid 19 order there at the sourcing point that impacted 10% or more of the business, the primary business that we're analyzing, then you're, you're there. Storage point, that's another one. Goods are stored locally, waiting to be shipped if there's problems there affecting that transfer point. Goods loaded onto cargo containers at a dock are similar area transfer storage point a dockyard access, both the transfer point and storage point for shipping as cargo containers are unloaded from ships, trucks, and trains, and must wait for their next shipping vessel.

 That's a big one there. I'm going to show you a few of these orders just generally, but I mean, the Los Angeles dock alone for imports to the us you're looking at really that one. Or really a lot of these along the line. Shipping by land, a trucker train delivers the cargo containers to the next point of transfer, which can be other storage points or transfer points until the goods end up at a shipyard dock. It could happen at the shipping sea leg of the journey. The goods loaded on a cargo ship make the journey to the next port of call, which is not necessarily the destination port shipping on land. The process continues in reverse of the cargo containers transported via truck and or rail. So if there was a severe problem with getting shipping containers back to the port, if the employer or their suppliers had their own shipping containers getting those back to the destination point, that goods finally reached their destination, which can be to the end user for the next point of manufacturer. So all these points are potential supply chain issues as they relate to covid 19 orders.

Okay. This part is in the handouts as it relates to these different orders. Yes, the LA Port congestion, Long Beach, LA makes up two of the biggest, and then San Pedro is another one in 2020 and 2021. The website for the consortium of these says that they are the nation's number one container port and global model for sustainability, security, and social responsibility. Isn't that nice? So they're in a, it is right there that they were affected and would continue to be affected through 2020 and 21 because of their extreme social consciousness about Covid 19 orders. And I'll let you. I won't just be labor at this point but I, I think the la port congestion will be very important for most employers who are, you know, looking to substantiate some things for a supply chain disruption.

For goods that came through the LA Port. Starting in January, 2020, the Port of Los Angeles Long Beach at San Pedro started experiencing increased wait times and an increased number of ships at anchor these ports within two nautical miles of each other, account for 40% of the country's global imported goods. And there's an article there from Bloomberg that recounts all of this in very good detail. In addition to logistical issues such as a trucker shortage and the inability to dispense with empty containers, the ports were also subject to local mandates that impose limitations on employee work and interactions.

Trucking. The chassis available at LA Long Beach are managed by what's called the Pool of Pools, an agreement between three major operators with the fleet totaling more than 56,000 trailers serving 11 terminals, four local rail facilities. The latest readings on their utilization rates are hovering near the highest levels of the year. The Los Angeles County Mayor issued a series of executive orders describing the hazard levels on a color coded basis, and required various precautions across all industries, which included warehouse and dock workers. These mandates included social distancing, self-quarantine when covid 19 symptoms were detected. This is why there were ships sitting out at port for months and months during 2020 and 2021, I mean, all the way up until the end of the third quarter and beyond. But certainly that's going to help you substantiate a supply chain disruption. During the first quarter 2021, the Los Angeles doc workers suffered an outbreak covid, 19 more than 700 workers were infected regardless of their essential nature.

LA County required infected personnel to remain home and self quarantine. The outbreaks of Covid 19 in LA and at other ports and the mandated self quarantine periods had more than nominal impact on the supply chains of many taxpayers. Despite using those restrictions. On June 15, 21, LA County Mayor announced that the county was moving into yellow designation. Accordingly, Covid 19 related shutdowns and labor shortages continued to delay flow of goods into the LA ports crew issues continuing through the year due to federal entry ban disrupted the efforts to conduct floating and unloading efficiently. And that congestion continued through September of 2021. So there's kind of a summary of all the things that happened. 40% of everything in America was coming through these ports. You would be hard pressed if your client, if you're a business that dealt at all in any type of goods.

 There's, there's some of your evidence right there to substantiate those, those slowdowns, partial shutdowns as they relate to the supply chain. I've listed out here some other concerns of other ports, Asian port closures were affected Q2 and three of 21 Japan orders, India orders, China orders then business employee travel. I've got some orders there, Netherlands, Italy, and Mexico. All those were affected for travel. And that's the, this is not an exhaustive list by any means. These were just kind of available out there on the internet. Like I said, they're not all inclusive, but certainly something that kind of pager file to support a supply chain disruption.

All right, moving right along. To kind of wrap up, this is the, this is the practice pointer that I think is good for patting your file, making sure that you have plenty of support if you're going in under I've, I've listed here a business that didn't have p and ls for me to look at, so we just took their bank statements and listed their gross receipts. And I keep notes on every single one of our business clients so that we can refer back to these if necessary. You can see that we've listed all the calendar months, and then I've done a quarterly total at the end, and you can't see here because of my head. There we go. There is, I've, I've done a little color coded key. If I'm proceeding on certain quarters under a full or partial shutdown, I put 'em in yellow here.

So this particular business, I think was a restaurant and they had full or partial shutdowns in Q1 or Q and, and q2. Again, you would not file for the ERC for q1, you would cram those two weeks. Remember, March 12th, 2020 through the end of Q1 2020, all gets shifted over here to q2, which also in this scenario qualifies under fuller partial shutdown. So I've notated that for myself for later. I went ahead and, and broke supply chain disruption as a key indicator here. Also, you'll notice for, for Q3 and Q4 of 2020 for this employer compared to the 2019 dates, they've got more than a 10%. It's not the full 50% that would be income reduction under my key here in, or we would've put that in orange if there was anything greater than 50% compared to 2019 for any of those quarters there.

So you'll see that there aren't any of those. But we've got supply chain disruption issues that we're documenting in, in other places in the notes under those things that I just went over with you because we've got more than 10% of the business being affected because of the supply chain. So these are just, just to jog my memory later down the road if necessary. Now you'll see 2021, we did the same exercise. We don't have any, we don't have any increase. We don't have any 20% or more reductions. In fact, we had a one point we had 2% growth and 6.6% growth for Q one and q3. So nothing to qualify this particular business there. But we do have essentially four quarters, really three quarters that we can take the ERC on. And you don't have to do it like this, and I'm sure there's better ways to do it. This is just something that works for me and it helps jog the memory if we ever need to do that later.

All right. So we've gone over the first hurdles. We've qualified some quarters. So now what do we do? First order of business is to gather some documentation. This is an extremely important part of the process. You want to get detailed payment reports by employee by quarter and now monthly is fine but you'll have to total 'em up into your quarters and you'll want to do this, get these detailed payment reports, which are usually different depending on what type of software that the employer may be using. But again, the relevant periods that we want to analyze Q1 through four of 2020, Q1 through three of 21 for most businesses or q4, if they're a startup, the report needs to include wages paid to any individual, including reported cash tips, et cetera, regardless of whether or not the employee was terminated at any time or still employed at the time that you're looking at this thing.

Believe it or not, this is an issue because a lot of people left or were terminated during the pandemic and that throws some things off. Sometimes some employers may not be aware that they still include anybody that they paid in this analysis at this point. So you want to have detail payment report by employee by quarter, regardless of whether or not they're still there or whether or not they were there more than even one quarter or paid more than one quarter. You're going to want to include withholding a federal income tax. You want to see both the employer and employees shares social security and Medicare taxes, also known as F I A and it needs to include health insurance and other benefits. 401K paid by the employer only. Not anything that was subtracted for the employees portion, but we get to include health insurance and other benefits 401k, et cetera, paid by the employer.

Payroll ports in popular software. I've just listed some of these off to kind of help. You may have to hold your client's hand if they're, if they have an accountant that's that helped with the, the payroll reports you're definitely going to have to stand over their shoulder, the employer shoulder, and help them run a report under Gusto. They call this a payroll journal builder under paychecks. It's called Payroll journal. ADP Payroll Summary. Quickbooks Payroll Summary by Employee Report. That's a good name for it. Paycom is a weird one. We have found that W two W three wage and tax report for all taxes is the best one because it includes all those things, gross wages paid and allows you to be able to subtract out the federal taxes, the FICA as well.

(

Next thing, this is an important point. Remember, you can't include any wages in your ERC calculation that were ultimately paid as wages in your PPP forgiveness calculation. So if client received PPP rounds one and or two, you need Paycheck Protection Program, PPP loan forgiveness application form is the best one. And the acceptance letter to let you know because not all a hundred percent got either forgiven in certain circumstances. Some of it was not necessarily paid, if you recall, from the paycheck protection program. Some of that I believe was only 70% of it had to be used on wages. There were some other things, their utilities, rent, things like that, that were allowed an employer was allowed to spend their money on. You don't have to take that part into consideration in the PPP calculations or the PPP subfraction from your ERC calculations. These are the form names for PPP one and PPP two. Those are the loan forgiveness application forms. If the client doesn't have it or the client's accountant or CFO doesn't have it, the bank should have it because remember, the banks were qualified to, they're the ones that helped distribute these and they collected these and should also hopefully have a copy of the forgiveness as well.

 Qualified wages are wages subject to withholding a federal income tax in both the employers and employees share of social security and Medicare taxes, also known as information regarding in eligible employer's ability to retain the federal income tax withholding the employees share of social security and Medicare taxes and amount equal to the Employee Retention Credit is all there in how to claim the Employee Retention Credit. Qualified wages are also considered wages for purposes of other benefits such as 401k, employer paid health insurance. Two note I put in here. When you're doing qualified wages, when you're calculating this, you don't have to include f uta. The federal unemployment tax doesn't mention it, so you don't have to subtract out F uta. You do have to subtract out PPP. Remember this is the big change in the CAA changes that were made allows quarters for PPP did not go to paid wages.

So example, an employer receives $300,000 of PPP, they use 200,000 to pay a 400,000 in wages for a quarter. So of those $400,000 wages, 200,000 would have to be subtracted out because you use PPP wages for that, but you still got $200,000 in play for calculating the ERC. So just because someone included a just because someone had a PPP loan or, or advance in one of the quarters, you still want to analyze this thing because there could be more out there still to get. All right, here's the minutiae of the rules of the calculation for ERC. You've got to exclude owners and owner family. Unless, and this is a very narrow rule, a hundred percent owner in the company has no living relatives, then you get to include, that's the only time you would be able to include an owner, by the way, is if they had no living relatives whether employed or not in the process.

That's IRS 2021 dash 49. Notice, super weird rule. Owner plus living relatives in the aggregate of 50% or more, they're disqualified. Okay? So any owner or aggregated owner plus relative of 50% or more, they're both disqualified, okay? Husband and wife, if they own 49%, that's okay. You can include them in that process in the ERC calculation. Here's, here's a weird aggregation rule in this scenario. Husband owns 20, wife owns 20 kid, one owns 10, kid two owns 10, kid three ohs, 10 so 20, 40, 60, 70, 80% un they're all disqualified under the family attribution rules because the total is 50% exceeds 50%. They are deemed to each own the aggregated amount under family attribution of 80%. So they're out. This does not apply to related individuals with zero ownership. So employees and the employee's wife and the employee's cousin, and on and on and on, see this all the time in these calculations.

They're all okay because they don't have ownership in this thing. Just the fact that they are related does nothing to the analysis of the calculation. All right? Here is the minutiae of 2020. Here's how you come up with the ERC amount. You take the qualified wages of non-owners, less the and you have each employee, you can only calculate them for quarters up to $10,000 per employee, employee per year. Okay? So they're going to max out at $5,000 in this calculation. In other words 50%, you divide the annual maximum by quarter by two. And that's your ERC rebate that goes over to that quarter is 941 X for 2020. Okay? So maximum of 5,000 per employee. There are no owners again, in that calculation. 2021 it is a little more lucrative for employers qualified wages for non-owner, less the PPP, again, maximum of $10,000 again, per employee, but it's per quarter, not per year. So if you paid them 10,000 in q1 and that, that 2021 and that one qualifies, and they 20, 21 quarter two is, is in play it resets for that employee at $10,000. You take it times 0.7, it's 70% of that 10,000. So $7,000 per qualified employee for Q one, two and three. That's where you get 21.

That's where you would get, yeah, $21,000 per employee for 2021 is in play. And that rebate amount goes over to the 941 X for that quarter. All right? Oops. Let's just go over real quick. What these looks like when you're going to fill out the 941 X, you're going to check applicable quarter and year. You're going to enter the date you discovered errors. That would be the date that you're filling out the 941 X check box two for a claim. Part two, check box three will file any additional W twos if necessary. Check box five C, fill in 26, a line 27 excuse me, total line of 27. And again, let me show you these. I'm, I'm just running down since we're running a little low on time here. But 26 a, that's the line there, and the total amount of the credit goes there in line 27. The instructions on where to file are going to be there in that URL, and that's where you would be filing your 941 X mail 'em in. I always mail these separately if we're doing, you know, different quarters, mail each quarter separately because the IRS tends to lose things, shock and awe to follow.

Average wait times we're seeing six to nine months. I think that will probably may actually get longer as more and more employers start to figure this thing out. And as, as more and more 941 X s are done and filed, the, the line will just get longer after 941 X considerations here that you'll want your client to be aware of or you to be aware of if you're filing this for yourself. We always do a an 88 21 to track the refund for the client. That's the it's an authorization. It's not the full on 28 48 but it's an authorization that allows you to go in as a tax professional and see where it is in the process. If you're doing it for yourself, you can track these things on the irs.gov through id.me.

You'll want to ultimately amend the 10 65 or 1120 corporate tax returns, including, don't forget K one may be affected because you're not going, The amount that is coming over from the 941 X for wages is going to be significantly decreased as an expense, which may add to the bottom line for the company and spill over into that K one for the owners. And, you know, that will also cause the need for an amendment of the 10 40 of the K one recipients if more tax ends up being new. So you're going to end up needing to file an amendment for the company and for the individual owners. Quick word on audit risks and myths. I've seen all kinds of nonsensical things coming out about what this is going to ultimately look like in three to five years when the IRS is tasked with you know, truing up some of these.

I mean, are all these going to get audited? Absolutely not. I don't see how that could possibly be. We've already seen a treasury inspector general report from October, or excuse me, from August 31st, 2022, that they're not handling the, they, the IRS is not handling this handling the audit process very well. And that has to do with lack of training both on the eligibility requirements and the calculation requirements from what we've seen from that TIG a report, they're kind of all in the weeds about who really, truly qualified for Q4 of 2021, whether they were a true startup or not. I mean, that doesn't seem like a, a, a huge mind bender to me. But nonetheless, it's causing some issues for the irs. And there is also a redacted portion of the TIG to report that shows that there is some threshold where IRS examiners are supposed to be turning this, or processors for the ERC are supposed to be turning this over for audit at a certain threshold.

I would have to imagine that since it's redacted and it's not yet in the internal revenue manual, it's all hush ha secret. I would have to think that that automatic audit would be somewhere probably in the 1 million plus, maybe even 2 million threshold per quarter for an employer. All right? Again, that's complete speculation, but the fact that you might get audited in this thing is, is I think it's not super going to be super prevalent on this thing, but be aware of the whatever this threshold number may be don't get greedy in the process, do things right, and you won't have anything to worry about both in qualifying the quarters and yourself as an employer as well as doing these calculations. And, you know, I think the, the biggest part there is going to be making sure that you take out PPP properly and there's not a whole lot of direction on how to do that calculation either taking out PPP there seems to be quite a bit of leeway that you could use as an employer to put your best foot forward when you go to do the PPP deduction from your ERC calculations.

And if you have questions on any of this, give us a call, 4 0 5 6 0 7 1 1 9 2. We can help you with that. And this was kind of a long presentation, but I think we hit the, the, the high points to be able to get you in a spot where you could comprehensively get that 941 X on file and start taking advantage of this thing before these things do. Time out. This is a, this does have a fuse on it, so it's not available forever. Thanks for watching.