The construction and real estate industry experienced a rollercoaster in 2020 as the COVID-19 pandemic affected different sectors in different ways. Residential construction is booming while commercial construction has slowed. For residential and commercial real estate, low interest rates, distressed sales and continued work-from-home trends all had a major effect in 2020 and will continue to do so in 2021 and beyond. Meanwhile, the hospitality sector continues to struggle due to travel restrictions.
Relief for certain construction and real estate businesses is accessible through the Employee Retention Credit (ERC). The ERC is a refundable payroll tax credit available to taxpayers choosing to keep their employees on the payroll who either experienced a full or partial suspension of business operations due to government orders or had a drop in gross receipts every quarter during 2020 or 2021.
The Employee Retention Credit History and Current Status
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides relief measures such as the Paycheck Protection Program (PPP) and the ERC; however, companies previously could only take advantage of either the PPP or the ERC, but not both. On Dec. 27, 2020, the Consolidated Appropriations Act of 2021 (CAA) retroactively ended this stipulation of the CARES Act and provided some enhancements to the ERC, meaning that companies in the construction and real estate industries can potentially take advantage of both the PPP and ERC. Details about what employers are eligible for the ERC are discussed . It is important to note that businesses claiming the ERC are required to reduce their qualifying wage deduction by the amount of the credit when computing their income tax liability so as to not receive a “double tax benefit.” This wage adjustment is outlined further in this DHG piece.
In recent months, we have seen that some eligible businesses have not yet received the cash benefits of the ERC or are still in the process of evaluating eligibility and quantifying the credit amount. The income tax payment deadline for most 2020 calendar year pass-through business taxpayers is May 17. While extensions may be filed to allow additional time for computing and reporting the wage adjustment, an extension does not allow additional time for payment of the income tax liability. DHG has written a letter to the IRS and Treasury requesting additional time for taxpayers to make payment of their 2020 income tax liability associated with this wage adjustment. Under the DHG request, taxpayers would have an additional 12 months to collect their ERC-related refunds and pay the income tax without any late payment penalties and associated collection actions. We have not yet received a response to this letter as of the time this article was published.
DHG will continue to closely monitor news related to the ERC and continue to assist companies in understanding opportunities associated with the credit. Our multidisciplinary approach can help your company estimate the ERC, develop an action plan and navigate any associated challenges. For questions or more information, reach out to us at ERC@dhg.com.