Top Three Payroll Tax Credits for the Pest Control Industry in 2021
For pest management companies, labor is the primary expense line item; thus, the opportunity to save payroll dollars can be significant. With that in mind, let’s explore three payroll credits available in 2021 to offset not only payroll taxes but also the actual wages paid.
Employee Retention Credit (ERC)
The ERC was introduced as part of the Coronavirus Aid, Relief, and Economic Security Act in March 2020. However, the credit originally limited applicability until the 2021 Consolidated Appropriations Act (CAA) retroactively opened ERC eligibility to Paycheck Protection Program borrowers. As a result, pest control companies should evaluate whether they qualify for either 2020 or 2021 ERC or potentially both.
The ERC is a refundable payroll tax credit, and if your business qualifies, you may be eligible for a 2020 retroactive credit up to $5,000 per employee and/or a 2021 credit of up to $7,000 per employee per quarter.
The 2021 ERC provides that a qualifying business has experienced either a partial or full shutdown of business activity as a result of a governmental order related to COVID-19 or calculated a 20 percent or more decline in gross receipts during any quarter of 2021 as compared to the same quarter in 2019. If a business qualifies under these criteria, then the amount of the benefit depends on the average 2019 full-time employee count. If the organization had 500 full-time employees or less, the amount of the credit is 70 percent of qualifying wages and health insurance paid during the gross receipts decline quarter, up to $10,000 per employee, for a maximum credit of $7,000 per employee per quarter. The credit is available for all quarters of 2021 and is claimed on the Form 941 quarterly payroll tax return.
Please note that any startup businesses established after February 15, 2020, may be eligible for the ERC as well, capped at $50,000 per quarter, if they do not otherwise meet the ERC eligibility tests.
For the 2020 ERC, if a business qualifies, it can file for the refund claim on an amended Form 941-X for applicable quarters. However, in 2020, the criteria and benefit amount differ from the 2021 ERC. The company must have experienced a partial or full shutdown as a result of a governmental order or calculated a 50 percent or more decline in gross receipts during any quarter of 2020 as compared to the same quarter in 2019. If the taxpayer can meet this threshold, the benefit is 50 percent of qualifying wages and health insurance paid during the qualifying quarter, up to $10,000 per employee, for a maximum of $5,000 per employee for the year.
COVID-19 Paid Leave
The paid leave credits introduced in the Families First Coronavirus Response Act (FFCRA) were also expanded as part of the recent American Rescue Plan Act of 2021 (ARPA) legislation in March 2021. If an employee was out of work for COVID-19-related reasons in 2020, small to midsize employers were required to provide up to 80 hours of paid sick leave to full-time employees. However, many employers were not aware they could claim payroll tax credits for this leave, equal to 100 percent of the amount of sick leave wages paid, up to 80 hours. Certain daily limitations applied depending on whether the employee was out because they were personally sick or quarantining or whether they had to take sick leave to care for a family member. The credit is refundable if it exceeds the amount the employer owes in payroll tax and can be claimed on an amended Form 941-X for 2020.
Under the ARPA, FFCRA paid leave credits were extended through September 30, 2021. In addition, the ARPA made several changes to the credit for wages paid between April 1, 2021, and September 30, 2021, including increasing the eligible wages to $12,000 per employee (up from $10,000 in 2020), resetting the 80-hour maximum, and expanding types of leave to include vaccination. Bottom line—if you have or expect to have employees out of work for COVID-19-related reasons and have not claimed the FFCRA paid leave credits, please contact your BKD Trusted Advisor™ for assistance.
Work Opportunity Tax Credit (WOTC)
Lastly, although this credit was not created by the pandemic-related legislation, the CAA extended the credit for five years through December 31, 2025. The WOTC provides a general business credit of up to $9,600 per qualified hire and is available to employers who hire and retain individuals from certain targeted groups. The eligible targeted groups include qualified veterans, ex-felons, and qualified long-term unemployment recipients. A qualified long-term unemployment recipient is a person who is unemployed for not less than 27 consecutive weeks and received unemployment compensation during some or all of that period.
As a result of the pandemic and the recent expansion and enhanced benefits of unemployment compensation, pest control companies may see more candidates meet the criteria of qualified long-term unemployment recipients. Please note that there is action required at the time of job offer and paperwork to be submitted to the state within 28 calendar days of hire, so companies have to move quickly to claim the WOTC.
For assistance in determining eligibility, calculation of the benefit, and compliance filings to claim these credits, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below. You also can explore our services for pest management companies to learn more about how we help the industry with various accounting and tax needs.