Employee Retention Credit: Scott DeLuca, Kavinoky Cook LLP | PeopleWork

Joe Peluso:

Hey everybody, Joe Peluso here again from Complete Payroll. Welcome back to People Work.

Joe Peluso:

People work is the series that we do where we interview experts a wide variety of topics under the Human Capital Management, Human Resources Umbrella, for the benefit of anybody whose job it is to manage your workforce or take care of people. I'm very happy to have on today, Scott DeLuca, who is a labor law attorney from the Kavinoky Cook Law Firm we talked to. This is the first of a two-part series that we did with Scott. This first part is about the Employee Retention Credit, and then the second part is going to be about the various leaves that popped up in the wake of the COVID-19 pandemic.

Joe Peluso:

I'm very excited to present both of these to you today. These are very sort of murky subjects to say the least. I think Scott does an amazing job of bringing it down to digestible and understandable terms. He was very gracious with his time and very knowledgeable, and we're super lucky to have him. Very happy again to present to you the first of two episodes featuring Scott DeLuca from Kavinoky Cook. This first one is on the Employee Retention Credit. Enjoy.

Joe Peluso:

All right. Scott DeLuca, do I have you?

Scott DeLuca:

You have me. I am right here and glad to be with you.

Joe Peluso:

And you are at the United States Supreme Court?

Scott DeLuca:

I am. I am at the Supreme Court today. Yes. I'm a proud member of the Bar of the Supreme Court. I was admitted in 2017, live in person at the Supreme Court, in direct eye contact with the Chief Justice. He looked right at me when my name was called and I stood up-

Joe Peluso:

I want you to tell the story, but I'm going to introduce you first. Okay?

Scott DeLuca:

Oh, okay.

Joe Peluso:

This is Scott DeLuca from Kavinoky Cook, an attorney's office in Buffalo, New York, local to us. You are actually coming to me from Lockport, New York, which is a second honorary home of mine, which is nice, so represent Lockport. Scott, why don't you... you're going to introduce yourself a lot better than I will. Just talk about who you are and what we're going to talk about today.

Scott DeLuca:

Well, sure. Thank you very much. I am Scott DeLuca. I have been practicing Labor and Employment Law in Western New York now for about 23 years. I am originally from Western New York. I went away for college and law school but in the late nineties, when it wasn't quite popular yet, I came back. I started the trend, I like to think. I graduated from New York Law School in 1998. I was a member of the Moot Court Association. I was Executive Editor there. I was also a member of the Journal of International Comparative Law. I've been practicing Labor and Employment Law in Western New York, and throughout the Northeast and other parts of the country. As needed, I am admitted in the New York State Courts, all four district courts in New York state, as well as the Federal Court for the Western part of Pennsylvania. I'm also admitted at the Second Circuit Court of Appeals in New York City.

Scott DeLuca:

Most recently in 2017, I was admitted to the Bar of the Supreme Court of the United States, and that is what you see right behind me here. This is the US Supreme Court courtroom. That was an incredible event for me. I was admitted live in person in the court in June of 2017. They let us in, we heard the announcement of several appeals decisions from the court, and then they recognized all the people who were being admitted. When your name is called, you stand up. I made direct eye contact with Chief Justice Roberts, who was originally born in Buffalo. That was a great experience being in the courtroom and being admitted and sworn in and whatnot right there on the court. But what was even better still was right after that, we were ushered back to a conference room where we were having a luncheon for all the people who were admitted, and Justice Ruth Bader Ginsburg came by and chatted with us for about 20 minutes or so. That was a great great experience to be within an arm's length of Justice Ginsburg and hearing talk... It was amazing.

Joe Peluso:

It's a once in a lifetime thing. It's so awesome.

Scott DeLuca:

[crosstalk 00:04:46] It was actually my second chance of meeting her in my lifetime. Actually, I met her in 1998 when she had just been on the court for about four or five years. When I was in law school, I have the chance, but this was amazing. To be admitted that day, and speak with her and whatnot. Truly outstanding experience.

Joe Peluso:

That's fantastic. Okay. That's awesome. I love that story. I'm so glad you... I'm not letting you off the hook without telling that story. So great.

Joe Peluso:

Today we wanted to have Scott on... Obviously, as things are starting to... It seems like things are opening up. It seems like this definitely, we've just had another relief package passed. There's a bunch of new legislation there, some updates, so we wanted to have Scott come on and talk about some of the new Labor Law impacts of the American Rescue Plan. We're going to talk about a few things. The ERTC, or the Employee Retention Tax Credit... Stuff with the CARES Act. We're going to touch upon a lot of things. Vaccination leave... You name it.

Scott DeLuca:

We have a busy agenda.

Joe Peluso:

Busy agendas, yeah.

Scott DeLuca:

Let's jump right to it.

Joe Peluso:

As you say, let's get into it. Thank you again for coming on. I'm going to ask you some questions that probably a lot of people ask is, what is the Employee Retention Tax Credit or the ERTC?

Scott DeLuca:

ERTC or ERC, some people take the 'T' out. It is a tax credit that is going to be available for certain employers with regard to some of the employment taxes, that are normally required to be paid to the Federal Government. As you mentioned, Joe, it was originally passed as part of the CARES Act in March of 2020, when the pandemic first started. It was expanded and the duration was lengthened in December of 2020 with the Consolidated Appropriations Act that was signed by then-President Trump. Then it was expanded again by the American Rescue Plan Act of 2021, which was just signed by President Biden a few weeks ago. With these various amendments, what I can tell you for certain at this moment is that, people can have the tax credit for wages that were paid certain wages of certain employers, that were paid from March 12th of last year through the end of last year.

Scott DeLuca:

Then there is additional tax credits and a greater tax credit that's available now for the entirety of 2021, but the amounts and whose qualifies are different for 2020 and 2021. Today, I want to focus on 2020 because that's the part that's passed in... Its historic at this point now. Those are things that you want to make sure that you file the right forms to get that, that tax credit before it expires or before you can't apply for the tax credit anymore. I will say that with the passage of the American Rescue Plan Act and the signing of that by President Biden on March 11th, the IRS has not come out with final guidance for that, for all of 2021 yet. We can answer some questions about that, but for the second half of 2021, there's a lot of unknown questions that are still out there about the ERC.

Scott DeLuca:

With that, I guess we can just turn to who's eligible for it. It's going to apply to employers that are in the private sector. Government, public sector employers don't qualify for it, but there were changes and now, it's also applicable for non-for-profit organizations. So private sector employers and not-for-profit are eligible for it. Quick note, if you're part of a larger organization, so you're a corporation that's owned by another corporation, there are aggregation rules that apply. What that means is that the IRS is going to look at the whole organization to determine who gets the tax credits. So you need to be careful if you are a corporation that's owned by another corporation or a larger entity, you may be aggregated with the larger entity, that may be the entire group or aggregation group, that's going to be applicable or eligible for the tax credit.

Joe Peluso:

What would that mean for them that they would get... they would likely get a smaller credit?

Scott DeLuca:

What it's going to mean is that the employer that may get it might be the corporate overlord, if I can put it that way, the owning corporation, or it may limit the amount that's available to each of the member corporations of the organization. So if you're part of a structure like that, where you're part of an aggregation group, you're definitely going to want to work with your counsel and your accountant to make sure that you're getting all of the coverage that you need, so that it's divvied up appropriately amongst all the entities. It's a pretty complex analysis and we certainly don't have time to do it today. It's so intricate. You definitely need to work with counsel and an accountant to make sure that you're properly looking at that.

Joe Peluso:

All right. I think we detoured for a second, but what... we were talking about... We have for a second did talk about aggregation thing, right?

Scott DeLuca:

Yes.

Joe Peluso:

Okay. Before that you were talking about who is eligible?

Scott DeLuca:

You want to go to that question?

Joe Peluso:

Sure. Yeah.

Scott DeLuca:

Okay. The question of who is an eligible employer... There are two ways that you can qualify for the ERC. First is that you're a trade or business that was fully or partially suspended, or had to reduce business hours due to a government order. There were lots of those that were in effect last year in particular, certainly in New York state, and there are still some that are in effect in New York state right now. If you were out of business for part of a period of time, part of a quarter, you can get the tax credit for that part of the quarter. If you are out of business for the entirety of the quarter, you can get it for the entirety of the quarter. It's going to depend on whether or not you are a trade or business that was fully or partially suspended.

Scott DeLuca:

Another way you can qualify on the second way is whether you had a significant decline in Gross Receipts during relevant quarter. During 2020, and for purposes of the CARES Act, the question is whether the Gross Receipts in a calendar quarter were 50% less than the Gross Receipts of the same quarter in 2019. For example, in Q2 of 2019, if you've had $500,000 worth of Gross Receipts, if you had 250,000 or less in 2020, you would qualify under that rule. Then you would have to look at each calendar quarter along the way to determine if you're eligible.That first question is aggregation.

Scott DeLuca:

Once you've got the aggregation question, then you determine eligibility, and it's whether you were suspended or stopped from operating, or you had a qualifying decline in Gross Receipts. There's going to be different rules through June of this year because of the change with the new law. I don't want to get into that yet because the IRS is still publishing those rules, so be on the lookout for new rules from the IRS to determine if you qualify for purposes of the Consolidated Appropriations Act of 2021 and the American Rescue Plan, which will affect after July 1st and later of this year.

Joe Peluso:

Okay, cool. That'll give us an excuse to talk again.

Scott DeLuca:

Outstanding.

Joe Peluso:

All right. What benefits are available for employers in 2020? Will they be different for 2021?

Scott DeLuca:

For qualifying employers, even if you received a PPP loan in 2020, the credit is for 50% of qualified wages that were paid between March 13th of last year and December 31st of last year, up to a maximum annual credit of $10,000 per employee. What does that mean? It really means up to a $5,000 tax credit per employee... And I just read you the way that the legislation is written and the way the IRS writes it. The bottom line is that you can get up to $5,000 tax credit per employee for qualifying quarters... sorry, not for qualifying quarters, for the entire period between March 13th and December 31st of 2020. What changed is that in 2021 it's per quarter, so the tax credit is going to be a lot better in 2021 if you qualify. They probably made it more attractive because they're hoping that fewer employers probably qualify for it now, because not as many people are out of business or suspended because of the pandemic, or have had the gross receipts fall off that they had previously.

Scott DeLuca:

In 2021, you can get a seven... up to $7,000 tax credit per employee per quarter. It's up to a $28,000 tax credit per employee in 2021.

Joe Peluso:

So it was five last year?

Scott DeLuca:

Yes, and now it's $28,000. Yes, but remember you have to qualify, you have to be an eligible employer for each quarter.

Joe Peluso:

Okay. So-

Scott DeLuca:

Say you were only eligible and, I'm sorry to cut you off, Joe. You were eligible for the first quarter of 2021, then you could get up to a $7,000 per employee. But if you qualify for the first two quarters, then you could get up to $14,000 per employee and going from there.

Joe Peluso:

Is it possible to qualify... I'm asking you all of these questions as a doe-eyed, somebody was nowhere near this. I work for a payroll company, but I'm the marketing guy, so I'm curious about this stuff. Would it be possible for someone to qualify for like Q1, not in Q2 and then again in Q3?

Scott DeLuca:

It is possible. I recall that there is a rule that if you have an 80% fall-off in business... There's some 80% rule that's in there and it may only qualify for the second half of 2021. But I think the answer to your question is you could. You could qualify for Q2 and 4 of 2020, and then 1, 3 of 2021. But watch out, specifically for 2021 about this 80% rule. There may be a Gross Receipts reduction piece that involves 80%.

Joe Peluso:

You've talked a few times about qualifying wages. What are qualifying wage?

Scott DeLuca:

Qualifying wages, specifically for the period between March 12th of last year and the end of last year, is going to be wages that are subject to FICA taxes. There's going to be anybody who is a W2 employee, and they're making less than the social security threshold, which is now somewhere in the $130,000 range. So if they're making less than... And there is a $100,000 threshold for the tax credit to begin with for compensation. If it's compensation, that's subject to FICA taxes up to $100,000. That is going to be a qualifying wage. Health expenses that an employer pays... that an employer or an employee on a pre-tax basis pays can also be qualified as wages for purposes of this tax credit. So it's not just the W2 that are subject to the FICA tax. It can also be qualifying health care expenses.

Joe Peluso:

Okay.

Scott DeLuca:

I mentioned earlier that people can get the tax credit and have received a PPP loan. You can't double dip. If you're using qualifying wages for purposes of why you got a PPP loan, you can't use those qualifying wages for purposes of the tax credit, too. Qualifying wages under the PPP do not count for the ERC.

Joe Peluso:

Why is the number of employees important?

Scott DeLuca:

The number of employees that an employer has... This goes back to the aggregation group that we started talking about at the beginning. What are the CARES Act? For purposes of March 12th to the end of 2020, the ERC applies to employers... Sorry, let me say that again. Under the CARES Act, an employer with more than a hundred full-time employees can only use the qualified wages of employees who are not providing services because of the suspension of business. If you're paying employees and they're doing work, those can't be used. But if you're paying employees and they're not providing services because you're continuing their wages, those can qualify. If it's a hundred or fewer employees under the CARES Act, you can use all wages that are paid the whole time.

Scott DeLuca:

Just only review that real fast, you have a hundred fewer employees, all wages qualify for the ERC. If you have a hundred or more, there's a limitation on wages that are being paid to people who are not providing services. Those are the only ones that can qualify for the ERC. What changed under the law that was signed by President Trump at the end of 2020, which was expanded by the American Rescue Plan by President Biden in March of this year, is that threshold changed to 500 employees. More than 500 employees, then you have that limitation. If it's less than 500 employees, it's all wages that are paid. And that is now for the entirety of 2021.

Joe Peluso:

Okay, so in the beginning, it was bit more beneficial for smaller businesses.

Scott DeLuca:

Very much so. Very much so, but now it's going to cover a much wider swath of employers across the country.

Joe Peluso:

Got it. Obviously, there's a possibility for some double dipping. Can you talk about... what if there's any protections in place to prevent that sort of thing?

Scott DeLuca:

The protections that are in place for that are going to be questions that are going to be raised about forgiveness of your PPP loan, or a review of your Form 941. If you claim a tax credit for employees on your 941, and there's cross-referencing that's done by the IRS or the Small Business Administration on the PPP side, you could be facing problems and your PPP may not be forgiven. You could face tax penalties on the 941 side, so you got to be careful to not use wages on both of those rules. Now that's not to say that you can't use wages that are paid during a non-qualifying period. If you don't qualify for the ERC, say during Quarter 2 of 2021, those might qualify if you get a PPP 2.0 loan as I call them, the second round of PPP loans that could qualify. So if you're not taking the ERC, then you would be able to use that against your PPP, but you can't do both.

Joe Peluso:

Okay.

Scott DeLuca:

I know it's crazy, and that's why I'm gratefully employed, I guess.

Joe Peluso:

[foreign language 00:21:48] I will absolutely make sure we put contact information for you because I'm sure a lot of people are feeling the same way I am right now like "what in the"-

Scott DeLuca:

"What did you just say?"

Joe Peluso:

Yeah. So then, what does somebody do? Like how do you get this? If you think that you qualify, what would be the next steps for an employer of any size that things they qualify for?

Scott DeLuca:

It's going to be dependent on the filing of your IRS Form 941. That's where you're reporting the taxes that are withheld from paychecks, from your employees paychecks. That's going to show the payments that are due to the Federal Government, and you would show the tax credit on the 941 form. If you already filed your 941 form, but you realize, "Hey, I'm entitled to this tax credit," they've created the handy-dandy IRS Form 941-X, and you can file that to get a credit. This is a refundable tax credit. What does that mean? It means that that is cash back in your pocket as an employer. If you overpaid the taxes that are due to the IRS on your 941, you file whether it's a 941 or a 941-X. That is money that'll come back to you as the employer for you to hold onto and use to operate your business.

Joe Peluso:

Okay, great. Trying to think what... Where do people find guidance for this stuff? Do you guys publish stuff on your page or is the IRS pretty communicative about how this all works?

Scott DeLuca:

Yeah. The IRS has been communicative and they provided some pretty solid guidance. It is pretty thick and detailed, which you would expect. My efforts to advise my clients have been direct communications with them. We don't publish a lot of this type of stuff on my firm's website, but I do a lot of it directly with my clients or direct communication with them. When employers come to me and say, "Hey, can we get this?" Then we conduct the appropriate analysis to determine whether or not they qualify and if so, how much? There's also clearly in this case going to be involvement with an accountant or whomever your 941 preparer may be.

Joe Peluso:

Okay. All right. I think we've covered everything that you wanted to talk about in terms of the ERC.

Scott DeLuca:

I think so, too.

Joe Peluso:

Okay. We'll put all this stuff in descriptions and blog posts and stuff like that. How do people get ahold of you? And who should get ahold of you?

Scott DeLuca:

Well, if you're an employer in state of New York and you're uncertain about the ERC, or any of the other topics that hit on the Labor and Employment realm, that's when you would contact me. I'm reachable at Kavinoky Cook, which is a law firm located in Larkinville in Downtown Buffalo, even though I'm up here in lovely Lockport. You can reach me through my email address, which Joe will make sure to publish as well as my cellphone number. I made that number readily available to all of my contacts and clients. That is the way to get ahold of me right now. Joe also put that up.

Scott DeLuca:

You should definitely feel free to reach out to me. I'm pretty good about trying to get back to people within 24 hours. I do a lot of litigation, so sometimes I get laser-focused on that, but that's client service and that's what's required. But if you contact me with your questions, we'll do our best to make sure that we get back to you in a timely manner to make sure that your questions are answered, and that you're not missing any deadlines for filings.

Joe Peluso:

Yeah. I will be sure to include all that stuff. Scott, thank you so much. Even I was able to latch onto some of this. Such a great resource, and I really, really appreciate you taking the time to sift this out and make it digestible for people. I always say people didn't get into... They want to make pizza. They want to like sell clothes or whatever. They don't want to deal with all this stuff. Having some a resource like yourself is such... I think people are going to get a lot of benefit from it. So I really, really appreciate your time.

Scott DeLuca:

Well, it's my pleasure. I'm glad to help. I look forward to helping any of the Complete Payroll clients that are out there and helping them navigate these choppy waters.

Joe Peluso:

Awesome. Thank you so much, Scott. Have a great day.

Scott DeLuca:

Thank you.

Joe Peluso:

All right, so that was Scott DeLuca again from the Kavinoky Cook Law Firm, discussing the Employee Retention Credit. Very helpful with this. Obviously, it's dense information and Scott does a great job of making it at least somewhat understandable. But absolutely, as he said, please feel free to reach out to him if you or your organization has any questions about this, or if you need some guidance in taking advantage of this tax credit. His information, you'll see wherever you're watching this.

Joe Peluso:

If you have any questions for Scott, if you have any questions for us, if you would like to suggest a topic for a future episode, or if you'd like to volunteer yourself to be a guest on a future episode, please drop us a line. We have an email address. PeopleWork@completepayroll.com. You'll see it here. Feel free to reach out. We would love to hear from you, even if you just want to leave some feedback, anything helps. But in the meantime, thank you again so much for watching. If you're able to please subscribe, we're constantly publishing content like this. We really appreciate that, but either way, thank you so much for your time and as always Welcome to Payroll Country!