Returning Value Blog

The Employee Retention Tax Credit (ERTC) is a valuable tax break that was extended and modified by the American Rescue Plan Act (ARPA), enacted in March of 2021. Here’s a rundown of the rules.

Is your business eligible for the ERC?

While the IRS has yet to update its web pages on the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers.

Many businesses use independent contractors to help keep their costs down. If you’re among them, make sure that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be a costly error.

IRS Notice 2020-65 allowed employers to defer withholding and payment of the employee's Social Security taxes. This deferral applied to those with less than $4,000 in wages every two weeks or an equivalent amount for other pay periods. It was optional for most employers, although mandatory for federal employees and military service members. 

Are you a business owner thinking about hiring? Be aware that a recent law extended a credit for hiring individuals from one or more targeted groups. Employers can qualify for a tax credit known as the Work Opportunity Tax Credit (WOTC) that’s worth as much as $2,400 for each eligible employee ($4,800, $5,600, and $9,600 for certain veterans and $9,000 for “long-term family assistance recipients”). The credit is generally limited to eligible employees who began work for the employer before January 1, 2026.

Beginning on January 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:

Small business owners are well aware of the increasing cost of employee health care benefits. As a result, your business may be interested in providing some of these benefits through an employer-sponsored Health Savings Account (HSA). Or perhaps you already have an HSA. It’s a good time to review how these accounts work since the IRS recently announced the relevant inflation-adjusted amounts for 2021.

Businesses that would typically provide a Form 1099-MISC to independent contractors (and certain others) and the IRS need to be aware of new IRS Form 1099-NEC. For non-employee compensation paid during 2020, payers must provide Form 1099-NEC (instead of Form 1099-MISC) to the recipients and to the IRS no later than January 31, 2021. In addition, the IRS has redesigned Form 1099-MISC, so businesses should expect that reporting may be somewhat different from past years.

On August 8, President Trump signed four executive actions, including a Presidential Memorandum, to defer the employee’s portion of Social Security taxes for some people. These actions were taken in an effort to offer more relief due to the COVID-19 pandemic.

There’s a new IRS form for business taxpayers that pay or receive nonemployee compensation.