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Updated: 2/16/2021

Under the CARES Act, employers who received a PPP loan were not eligible for the Employee Retention Tax Credit (ERTC).  This qualification was repealed with the Consolidated Appropriation Act of 2021.  Below is a summary of the key provisions of the credit, reflecting changes made by the new law:

Time period credit is available

• Qualified wages paid after March 12, 2020, and before July 1, 2021

Eligibility requirements for 2020

• Applies to wages paid by a business with operations that were either fully or partially suspended by a COVID-19 governmental order and only for wages paid during the period the order is in force;

OR

• Applies to wages paid during 2020 beginning with the any quarter where gross receipts were less than 50% of gross receipts for the same quarter in 2019, and including each subsequent quarter until after the quarter in which gross receipts are greater than 80% of gross receipts for the same quarter in 2019.

Eligibility requirements for 2021

• Applies to wages paid by a business with operations that were either fully or partially suspended by a COVID-19 governmental order and only for wages paid during the period the order is in force;

OR

• Applies to wages paid during the first two quarters of 2021 where gross receipts are less than 80% of gross receipts for the same quarter in 2019 (or 2020 if not in business in 2019).

Amount of credit

• 2020 – Credit is 50% of qualified wages paid to an employee, plus the cost to continue providing health benefits to the employee.  Annual cap of $5,000 per employee.
• 2021 – Credit is 70% of qualified wages paid to an employee, plus the cost to continue providing health benefits to the employee.  Quarterly cap of $7,000 per employee for each of the first two quarters of 2021 for a possible $14,000 credit per employee.  The 2021 credit is available even if the employer received the $5,000 credit for wages paid to such employee in 2020.

Size of employer

• 2020 – A company with 100 or fewer full-time equivalent employees is eligible for the credit, whether or not the employee was working.  A company with more than 100 employees can only take the credit for wages paid to an employee who is not working.
• 2021 – A company with 500 or fewer full-time equivalent employees is eligible for the credit, whether or not the employee was working. 

PPP loan interplay

• Employers that received a PPP loan in 2020 are now eligible to take the ERTC, so long as the same wages are not used for both the credit and PPP loan forgiveness.  In other words, if there were wages paid during the PPP loan 24-week period that exceed the amount needed to achieve 100% PPP loan forgiveness, then these additional wages can be used for the ERTC as long as the business otherwise qualifies for the credit.

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Kevin manages marketing & business development at Dental Accounting Professionals LLC.

Follow Kevin J. Bray on LinkedIn

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Updated 12/11/2020:

As we have been working through 2020 tax projections with clients, we are seeing many offices have higher taxable income and tax liabilities over 2019 performance, despite the COVID shutdown. This is somewhat counter to expectations and a surprise to some practice owners. The causes for the added income are the PPP funds, the HHS Provider Relief Funds and other grant funds – all adding to taxable income. Tax mitigation with charitable giving, equipment purchases & retirement plans should be part of the conversation today. If your tax advisor is not going through a tax planning exercise now, you may be in for a surprise come April 2021.

We want to give the Washington Academy of General Dentistry a special thanks for all of their hard work during this ongoing pandemic. They went above and beyond during the mandated COVID shutdown this year by providing virtual CE for free to dentists across the country. They dedicated a huge amount of time and resources towards serving the needs of the industry during a time of great uncertainty. The wealth of information the AGD broadcast was invaluable. We participated in that cause to provide insight from our CPA team on the CARES Act, PPP Loans and additional stimulus for dentists. We saw firsthand how much effort the team at the Washington AGD put forth. A round of applause for the AGD team and volunteer colleagues that did a fantastic job. As you know, the WAGD is a non-profit organization. That means your donations to the AGD are tax deductible. The AGD needs our support now more than ever! So please consider a donation to your association and get a bonus tax deduction.

Temporary suspension of limits on charitable contributions in 2020 as part of the CARES Act

If you take the standard deduction on your 2020 tax return (the one that you’ll file in 2021), you can claim a brand new “above-the-line” deduction of up to $300 for cash donations to charity you make this year. Normally, you would have to itemize on Schedule A to get a tax break for charitable donations.

If you itemize deductions on your tax return, you can claim a deduction for your charitable donations. However, the amount you can deduct for cash contributions is generally limited to 60% of your adjusted gross income (AGI). Any cash donations over that amount can be carried over for up to five years and deducted later. The CARES Act lifts the 60% of AGI limit for cash donations made in 2020 (although there’s still a 100% of AGI limit on all charitable contributions). That means itemizers can deduct more of their charitable cash

contributions this year. If your taxable income is higher than expected, consider bunching (pre-paying) some of your 2021 charitable donations into 2020.

Equipment Purchases

The various depreciation rules available to business owners allows for the rapid deduction of capital expenditures for equipment and office remodels by permitting the entire write-off of the capital investment, even if financed. The trigger for the write-off is getting the asset in-service by year-end. If your practice is in need of some equipment upgrades or added technology, make those investments and get the new equipment delivered and installed by year-end for an immediate tax write-off.

Additional Retirement Planning with a Cash-Balance 401k

If you are a high-income practice owner and want to accelerate your retirement saving plans (and save even more on taxes!), this is a strategy to consider. With a traditional 401k/401k profit sharing plan, your contributions are capped at $57,000 (or $63,500 if age 50 or older). With a cash-balance 401k your contribution limit is significantly increased. It’s based on an actuarial calculation, but in many cases an owner can contribute over $150k+ each year. Remember, this is a pre-tax contribution! The deadline to setup a Cash-Balance 401k plan for tax year 2020 has been extended because of COVID. Traditionally you had to have the plan formed by the end of the calendar year. Now you have until the due date of your tax return (including extensions). You also do not have to fund the contributions until the extended due date of your return (September 15^th or October 15^th, 2021). This allows ample time to plan and set money aside with future cash-flow and get a 2020 tax deduction.

In conclusion, every practice owner should be setting aside time now to act on tax mitigation strategies. This year has proven to be hard for business owners across the country, but especially for non-profits since the traditional fundraising events have been cancelled. Remember to support your local charities & non-profits (including the Washington AGD)!

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Kevin manages marketing, business development, and customer success for Dental Accounting Professionals LLC & Benton Bray PLLC. He is highly analytical, creative, and forward thinking in his approach to working with clients. His background is in commercial real estate with a focus in dental office leasing and investment sales. Kevin’s passionate about investing for the future and implementing new technologies to streamline outdated workflow processes to increase bottom line results.  

Follow Kevin J. Bray on LinkedIn