Transportation companies have been significantly impacted by the Covid-19 pandemic. Despite the daunting challenges faced, businesses have an opportunity to journey on the road to recovery leveraging benefits provided under the Employee Retention Credit (ERTC), a provision of the CARES Act introduced by the U.S government. Hereunder, we delve into the ERTC specifics to guide and inspire enthusiasts in the transportation sector.
ERTC eligibility criteria for Transportation companies.
Insights on qualified wages and proportional limits under the ERTC.
Understanding the interplay between ERTC and PPP.
ERTC filing process, documentation, and compliance requirements.
How ERTC applies to specific subsectors within the transportation industry.
Navigating ERTC Eligibility for Transportation Companies
To be eligible for the ERTC, a transportation company must have been in operation in 2020 and either fully or partially suspended due to government orders related to Covid-19, or, experienced a significant decrease in gross receipts — specifically, a drop of more than 50% in a given quarter compared to the same quarter in 2019.
Gaining Clarity on Qualified Wages and Proportional Limits
‘Qualified Wages’ under the ERTC refers to wages paid to employees during the period the business was disrupted due to Covid-19 related orders, or during a significant decline in gross receipts. For businesses with more than 100 employees, only wages paid to employees for providing no services qualify.
Additionally, the ERTC is capped at $5,000 per employee for 2020, and up to $7,000 per employee per quarter for 2021. The credit is applied against the employer’s portion of social security taxes, but if it exceeds the company’s tax liability, it is refundable.
ERTC and PPP Interplay: Understanding the Rules
If businesses have utilized the Paycheck Protection Program (PPP), they can still claim the ERTC, albeit not for the same payroll costs as those covered by the PPP. Companies need to ensure there is no “double-dipping”. Most importantly, the PPP and ERTC can be a powerful combo for firms looking to enhance their liquidity position.
Filing Process for ERTC
Process for Retroactive Claim of ERTC
Companies can claim ERTC for qualified wages retroactively by amending the appropriate quarterly federal employment tax returns—specifically, Form 941-X. The IRS has provided guidance on how to report and calculate the ERTC on these forms.
Documentation and Compliance Requirement
A smart move for companies would be to maintain detailed records of their business disruption due to Covid-19, along with the qualified wages paid. They should also substantiate the purpose for which PPP was utilized.
Collectively, such periodic audit trails serve as strong defense artefacts during IRS reviews. Remember: the burden of proof is always on you, the taxpayer.
Covid-19 Sick Leave Policy: Its Impact on ERTC
Businesses providing paid sick leave or family leave wages to employees impacted by Covid-19 can also claim ERTC, as per the Family First Coronavirus Response Act (FFCRA). However, sick and family leave wages are not treated as qualified wages for the ERTC.
Application of ERTC to Specific Transportation Subsectors
ERTC Guide for Commercial Aviation Companies
Commercial aviation companies, despite heavy travel restrictions, can avail benefits through the ERTC. They must fulfill eligibility criteria just like any other transportation business, and can highlight reduced passenger traffic as a significant indicator of business disruption.
Key Pointers for Mass Transit Operators for Availing ERTC
Mass transit operators, be it for road, rail, or metropolitan subway, have been hard hit due to a substantial drop in commuting demand. They can lay claim to the ERTC; social distancing directives resulting in reduced capacities may qualify as business disruption.
What’s more, these operators can also utilize ERTC against the employer’s portion of the Railroad Retirement Tax Act (RRTA) tax equivalent to social security taxes.
Sailing Smoothly with ERTC: Guidelines for Maritime Shipping
Maritime Shipping companies can apply the ERTC to their benefit. Restrictions in many ports around the world and falling global trade volumes could serve as evidence for business disruption caused by Covid-19. Don’t overlook the ERTC’s potential windfall for dealing with these turbulent times.
Expert’s Corner: Common Pitfalls and Recommendations
Top ERTC Misassumptions to Steer Clear of
Let’s demystify common misconceptions about ERTC:
ERTC is only for small businesses: Nope. Whether your business is small or large, you may qualify for the ERTC.
PPP recipients cannot apply for ERTC: Wrong. Businesses can avail benefits from both. But, payroll costs that were used for PPP loan forgiveness cannot be double-counted towards the ERTC.
ERTC is automatic: Incorrect. Companies need to apply for the ERTC as part of their federal employment tax returns.
Effective Strategies for Maximizing ERTC Benefits
Here are three practical strategies you may explore to maximize the ERTC:
Assess Potential ERTC Eligibility: Examine if you qualify for the ERTC under either or both the government order or significant decline in gross receipts criteria.
Consider ERTC in Business Planning: Incorporate ERTC in cash flow forecasting and financial modeling, as it could have substantial impact on your financial position.
Prepare for Compliance: Maintain thorough documentation that demonstrates your eligibility for and computation of the ERTC. Expect an IRS review of your claims.
Frequently Asked Questions
Is ERTC applicability limited to U.S.-based employees?
No, wages paid to both U.S. and foreign-based employees may qualify for ERTC, provided these are subject to U.S. federal payroll taxes. However, specific exclusions may apply, so be sure to check IRS guidelines or consult a tax professional.
Can a Transportation Company claim ERTC for multiple quarters?
Absolutely. A company can claim ERTC for any qualifying quarter in 2020 or 2021. Therefore, you can potentially claim for multiple quarters if you meet the eligibility criteria.
Do unions’ collective bargaining agreements impact ERTC treatment?
Union agreements by themselves don’t impact ERTC eligibility. However, the number of employees and wage stipulations that such agreements define could affect the calculation of the credit amount.
What happens if the wages used for calculating ERTC are later found to be excessive?
If the IRS determines that excess ERTC was claimed, the excess will have to be returned, either by an offset against future payroll tax deposits or direct repayment. Penalties and interest may also apply, hence, careful calculations and compliance are a must.
Can ERTC be claimed if employees received income support through unemployment benefits?
No. ERTC can’t be claimed for wages paid to employees for periods they received unemployment benefit.
In conclusion, while the ERTC offers an attractive fiscal boon to tackle resistance stemming from Covid-19, understanding its nuances is key. Companies need to be well-equipped with the relevant knowledge and strategies to sail smoothly on the road to recovery. The enthusiastic transportation sector, spanning from commercial aviation and mass transit to maritime shipping, has the potential to emerge stronger, thanks to schemes like the ERTC.