There are still opportunities for banks to claim the Employee Retention Credit (ERC).
The ERC has been extended and expanded multiple times with new legislation. Most notably, The Consolidated Appropriations Act (CAA) increased many of the credit threshold requirements, allowing for more banks to qualify.
- If your bank was not eligible under the original ERC criteria, it may be a good time to contact Eide Bailly and explore the possibility of pursuing the ERC under this new criteria.
Unfortunately, the ERC has become a popular source of fraud with certain firms aggressively promoting the credit, resulting in many businesses filing unsubstantiated ERC claims. In response, the IRS has issued multiple warnings and announced additional enforcement efforts. While it is important to be cautious when considering ERC eligibility, the warnings should not prevent eligible banks from exploring the opportunity to file a proper claim.
- If you received a notice from the IRS regarding a previous ERC claim, our tax controversy professionals can help.
What is the ERC?
The ERC is a payroll tax credit available to small to mid-sized businesses that continued to pay employees during the pandemic. Eligible employers that did not claim the ERC with their original Form 941 may file an amended return within the statute of limitations period to claim the credit.
New legislation increased the credit amount, allowing a 70% credit on qualified wages up to $10,000 per employee, a maximum $7,000 credit per employee per quarter for portions of the 2021 tax year. This is significantly more than the original $5,000 annual credit amount allowed for portions of the 2020 tax year.
|Time Period||March 13, 2020, to December 31, 2020||January 1, 2021, to June 30, 2021
(credit computed for each quarter)
|July 1, 2021, to September 31, 2021
(credit computed for each quarter)
|Credit Rate||50% of eligible expenses||70% of eligible expenses|
|Qualified Wages||Can qualify up to $10,000 per employee||Can qualify up to $10,000 per employee|
|Maximum Credit per Employee||$5,000 aggregate||$7,000 per quarter|
|Eligible Small Employer||Less than or equal to 100 full-time employees||Less than or equal to 500 full-time employees|
|Statute of Limitations to Amend Form 941||April 15, 2024||April 15, 2025|
How do banks qualify?
To qualify for the ERC, a bank must meet the applicable “eligible small employer” definition for number of full-time employees and satisfy one of two requirements to be deemed an eligible employer.
- The first requirement is a gross receipts test:
- In 2020: gross receipts decline of greater than 50% in any quarter in 2020 vs. 2019.
- In 2021: gross receipts decline of greater than 20% in any quarter in 2021 vs. 2019.
In December 2020, threshold for the gross receipts was reduced from 50% to 20%. This change allows more banks to qualify as an eligible employer.
- The second requirement involves a bank having its operations fully or partially suspended by an appropriate government authority limiting commerce, travel or group meetings due to COVID-19 in a manner that affects the bank’s operations.
During the pandemic, banks were deemed an “essential business” and generally maintained normal operations. To be eligible for the credit under the second scenario, more than a nominal portion of bank’s operations were required to be suspended by a government order. This scenario is more restricting for banks than other industries, such as retail stores that were not deemed essential.
What are the next steps for banks when it comes to the ERC?
While the ERC was originally expected to expire on December 31, 2021, the Infrastructure Investment and Jobs Act (IIJA) of 2021 retroactively repealed the ERC for most wages paid after September 30, 2021. The maximum credit amount per employee for the three quarters in 2021 is $21,000.
Now is the time to reconsider your bank’s ERC eligibility. With the many ERC extensions and enhancements since the CARES Act legislation, your bank may now be eligible for the credit.