Judy Rankin Explains Everything You Need to Know About the Employee Retention Tax Credit
In 2017, hurricanes Irma, Harvey, and Maria ravaged large swaths of the U.S. In the wake of this devastation, Congress passed the Disaster Relief Act in September 2017 to help individuals and business owners recoup from their losses.
Judy Rankin is a CPA with Carr, Riggs, and Ingram, a nationally-recognized firm of CPAs and business advisors. She has weathered the storms of tax season for 40 years.
She and I discuss the Employee Retention Credit, a lucrative part of the Disaster Relief Act that she thinks is being overlooked by too many business owners.
Employee retention tax credit
Ed: Hurricane Irma wreaked havoc all across Florida. Even our building here in downtown Orlando was damaged. Nothing serious, we just lost our sign out front. But lots of other businesses weren’t as lucky. They sustained serious damage and had a substantial loss of income. You’re here today to give us some information on a way that those businesses can get help recovering.
So, Judy, what is the Employee Retention Credit and why should employers care about it?
Judy: The Employee Retention Credit is a tax credit that’s available to businesses that were forced to close or even suffered a discontinuation of business as a result of a hurricane and that continued to pay employees during the closure or discontinuation.
The employee had to be on staff as of September 4, 2017, but any wages you paid them during days that your business was inoperable up until December 31, 2017 are eligible for the tax credit.
Ed: That sounds like it could apply to quite a few businesses. I guess the next thing to ask is, how big of a credit are we talking about here?
Judy: The credit is a great credit. A business can receive 40% of up to $6,000 in wages per employee.
Ed: Wow, so that’s a max of $2,400 per employee that businesses could be claiming? Are there any restrictions on this credit?
Judy: Unfortunately, yes, there are. First, if you’re currently opting for any other employment-related credits, you can’t overlap with those. So, for example, if you’re taking advantage of the work opportunity credit, then you can’t “double dip” on tax credits.
Also, some people are excluded from this credit and don’t meet the definition of “qualified employee”—most importantly, majority owners. So, if someone who owns more than 50% of the business worked and was paid during those inoperable days, they would not be qualified to receive the credit for their salary.
What counts as “inoperable”?
Ed: It still sounds like a good opportunity for business owners whose businesses were affected by these storms to get some help.
Now, you’ve said “inoperable days” a few times. What exactly does “inoperable” mean here? Is it “doors closed, windows shuttered”?
Judy: For most people, that would have been the case. They were out of power or had bad damages. But it also includes days where your doors were open but there was really no business for whatever reason.
I had a client that opened their doors for a couple of days but had no business whatsoever. They still had damage and clean-up duties to do, but no business and no income. We would consider them to be inoperable. Eventually, we found out that there was a tree actually blocking their parking lot!
You could also include employees who had minimal work during that period or who were working off-premises. These wages would be eligible for the credit as well.
Ed: Fantastic. And how or where is this credit reported?
Judy: The credit is reported on form 5884-A. The form itself contains instructions and additional information on reporting procedures.
First of all, if you live in an area that was affected by any of the hurricanes in 2017, we hope that neither you nor anyone else was injured. If your business was damaged or suffered, we hope that you are on your way to full recovery. Finally, we sincerely hope that the information here about the Employee Retention Credit can assist you even further in recuperating from these awful storms.
We would love to speak with you more about your business needs and learn how we here at Alexander Abramson can help you grow and manage your business.
Call us at 407-649-7777.