Partial Shutdown ERC - timing of wages

Technical topics regarding tax preparation.
#1
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I have a restaurant client I've determined qualifies for the ERC based on a partial shutdown. I am dealing with PPP and other caveats, but I'm trying to determine the amount of qualifying wages for the 75 employees of the company.

They handle their own payroll and pay wages monthly.

In this case (for example), Idaho gave a stay at home order on March 25th (no indoor dining), which remained in place beyond March 31.

Are qualified ERC wages determined based on the pay date or are they accrued based on the dates the wages were earned??

All but 1 of the employees in this case received their check for March work (1st through 31st) on April 3rd. Obviously that would be Q2 salary. If April 3rd falls in the shutdown period (it does) do 100% of those wages qualify? Or do we need to prorate the wages (x 7 shutdown of 31 total days)? Or do we need to determine actual hours worked from March 25th to 31st?

That one employee is a different example but for Q1. She was paid on March 27 for the period ending March 25th. Does 1/25th of her pay qualify for Q1 ERC? or does her entire wage qualify? Or do we need to figure out how much she worked on March 25th and that would be her qualifying wage?
 

#2
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We don't know or we don't care ? :D
 

#3
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As I understand, wages paid during for hours the employees worked in prior periods (i.e., prior to the shutdown or prior to the drop in revenues) do not qualify.

So most of the wages paid on April 3 & March 27 wouldn't qualify, but some of it would.

So it would seem that you need to determine the actual hours worked from March 25 on, and count only the wages paid for those hours. I'm not aware of any IRS-approved methods to figure it in a simpler way.
 

#4
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Where are you guys seeing these interpretations?
 

#5
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I take it back. That would be if there are more than 100 employees, for employees that are no longer providing services.

For employers with 100 or fewer employees, then rule is:
(I) with respect to an eligible employer described in subclause (I) of paragraph (2)(A)(ii), wages paid by such eligible employer with respect to an employee during any period described in such clause, or
(II) with respect to an eligible employer described in subclause (II) of such paragraph, wages paid by such eligible employer with respect to an employee during such quarter.


So long as you paid the wages during the shut-down period or during the quarter that had the drop in revenue, then it qualifies. Subject to the $10k/yr. cap (so maybe it won't make a difference anyway), and subject to disallowance of wages applicable to PPP, etc.
 

#6
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I get where you're coming from on the large employers. There does seem to be a connection (or expectation) that the wages paid during a shutdown relate to the business being, wholly or partially, shutdown. However, i think it's unclear in that the way it's written is that qualifying wages are those paid for them not to do work during a full or partial shutdown. For example, some states have different periods when they officially required business closures. However, some businesses had already begun not requiring employees to do work. I know one case where employees were not shutdown, but the employer paid all employees 50% of their normal rate. Later we determined that 20% of the busines was actually shutdown by government order. Do we get to take all the wages paid during the shutdown to not work or only an allocation of the hours paid not to work since they began before the government order, or are all the employees paid (to not work) qualifying, or only on the business segment subject to the shutdown- the 20%?

I'm really not looking for answers, i just wanted to point out how nuanced the issues can be. Thanks!
 

#7
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Oh, it's nuanced and I'll have to take a closer look.... again... so I appreciate your thoughts Terry. And Bearden I appreciate the research. I'm glad for this small employer if I do decide they qualify, that it will be effectively "cash" not "accrual" basis to determine the qualifying salary - we don't have either of the hypotheticals you described Terry - fairly straight forward.
 

#8
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ERC Wages are on a paid basis. The language per the IRS FAQs and Notices are not ambiguous on this point. Therefore, you may actually capture payroll earned prior to a full or partial suspension of biz operations (FPSO) as eligible wages if the FPSO began before the payment.
 

#9
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IDCPA wrote:We don't know or we don't care ? :D


Yes, ERC is a joke
 

#10
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Another day, another timing question. Sick Leave credit is good for sick leave up through Sept 30, 2021. I have a client who had 2 employees out with Covid the last week of September, but were paid for that period in October. While I haven't seen it spelled out it appears the fact it was September sick leave qualifies them for the credit on their October payroll. I'm hoping the 4Q 941 still reports this correctly despite the credit ending in Q3....

Am I reading those tea leaves correctly?
 

#11
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That matches my understanding of it: The sick pay credit is for sick time off through 9/30/2021, regardless of when the wages are paid.
 

#12
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Thank you. Sorry, I thought this was a new post, but I'm glad you responded here. That's my understanding so I'm going forward that way. Thanks.
 


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