The ERTC Program for Child Care Providers
Mackenzie Lee
2023 Tax Guide for Child Care Businesses
Preparing your 2023 taxes for your child care business? From deductions to specific forms, there's a lot to do. Our comprehensive guide will help you out!
2023 Tax Guide for Child Care Businesses
Preparing your 2023 taxes for your child care business? From deductions to specific forms, there's a lot to do. Our comprehensive guide will help you out!
What is ERTC?
If you're a child care business owner, you may be wondering what the Employee Retention Tax Credit (ERTC) program is and how it can apply to your business.
The ERTC program is a federal tax credit that was created to help employers retain employees during the pandemic.
Under the American Rescue Plan Act of 2021, small businesses that were open during COVID-19 can claim this credit on qualified wages paid between July 1, 2021, and December 31, 2021, even if they received Paycheck Protection Program (PPP) loans.
So, what does this mean for child care providers? It means that if you meet the eligibility requirements, you can claim a credit for up to 70% of qualified wages paid to employees, up to a maximum of $21,000 per employee in 2021 and $5,000 per employee in 2020.
That's a significant amount of financial assistance provided by the government with no strings attached on how you have to spend the money once you receive it.
Child care providers can claim the ERTC on their quarterly employment tax returns using Form 941. Employers can also claim an advance payment of the ERTC by filing Form 7200.
It is recommended that child care providers consult with a tax professional to determine their eligibility and how to claim the credit.
Who Qualifies for ERTC?
Let's take a closer look at the eligibility requirements:
Significant decline in gross receipts
An employer must have experienced a significant decline in gross receipts during a calendar quarter in 2020 or 2021 when compared to the same quarter in 2019.
The decline must be due to the COVID-19 pandemic and its effects on the business. The term "gross receipts" generally refers to all revenue received from any source, including sales, services, interest, dividends, rents, and royalties.
A significant decline in gross receipts is defined as a decline of 50% or more in gross receipts.
For example, if a business had $100,000 in gross receipts in Q1 2019, but only $40,000 in gross receipts in Q1 2020 due to the COVID-19 pandemic, it would meet the requirement for a significant decline in gross receipts and could be eligible for the Employee Retention Tax Credit (ERTC) for that quarter.
Business operations were fully or partially suspended due to a COVID-19-related government order
In addition to experiencing a significant decline in gross receipts, businesses may also be eligible for the ERTC if their operations were fully or partially suspended due to a government order related to COVID-19
This includes orders that required businesses to shut down or reduce operations to slow the spread of the virus.
Employer size
For the first two quarters of 2021, an employer can qualify for the ERTC if it has 500 or fewer employees. For the third and fourth quarters of 2021, an employer can qualify regardless of its size.
Wages paid
Employers can claim the ERTC for qualified wages paid to employees during the eligible time period.
Qualified wages include wages paid to employees who are not providing services due to a COVID-19-related government order or a significant decline in gross receipts.
Employers can claim the credit for up to $10,000 in qualified wages per employee per calendar quarter.
What is a 941 and 7200 Form?
Form 941 is the Employer's Quarterly Federal Tax Return. This form is used to report employment taxes, including Social Security and Medicare taxes, federal income tax withheld from employees, and the employer's share of Social Security and Medicare taxes. Employers who are eligible for the ERTC can claim the credit on their quarterly employment tax returns using Form 941.
Form 7200 is the Advance Payment of Employer Credits Due to COVID-19. This form is used to request an advance payment of the ERTC, as well as other employer tax credits related to the COVID-19 pandemic.
Employers who have already claimed the ERTC on their Form 941 for a quarter can use Form 7200 to request an advance payment of the credit for the same quarter.
It is important to note that both forms have specific eligibility requirements and instructions for use. Employers should consult with a tax professional to determine their eligibility for the ERTC and how to properly complete and file Forms 941 and 7200.
Suspended Operations Test
The suspended operations test is one of the eligibility requirements for the Employee Retention Tax Credit (ERTC).
It applies to businesses that did not experience a significant decline in gross receipts, but instead had their operations fully or partially suspended due to a COVID-19-related government order.
To meet the suspended operations test, a business must have been fully or partially suspended during a calendar quarter due to a government order related to COVID-19.
For example, if a state mandated that all non-essential businesses must close for a period of time due to the pandemic, any business affected by that order would meet the suspended operations test for that quarter.
An employer must demonstrate that it has experienced a more than nominal impact due to the COVID-19 pandemic. This means that the impact of the pandemic on the employer's business must be more than minor, insignificant, or incidental.
To demonstrate a more than nominal impact, an employer must show that it has experienced significant changes in its operations, such as reduced hours, temporary closures, or significant changes to business practices.
Additionally, the employer must be able to show that the changes in its operations were directly caused by the COVID-19 pandemic or related government orders.
For example, a restaurant that had to close its indoor dining area and switch to takeout and delivery only due to COVID-19 restrictions would likely meet the more than nominal impact requirement.
Similarly, a retail store that had to reduce its hours of operation and limit the number of customers allowed in the store due to the pandemic would also likely qualify.
Recovery Startup Business (RSB)
A Recovery Startup Business (RSB) is a new business that began operating after February 15, 2020, and meets certain eligibility criteria for the Employee Retention Tax Credit (ERTC). The RSB designation allows these businesses to claim the ERTC even if they did not have any gross receipts during a quarter in 2019.
For child care providers, an RSB may be eligible for the ERTC if it began operating after February 15, 2020, and before January 1, 2022. Additionally, the RSB must meet the gross receipts or suspended operations test for each quarter in which it is claiming the credit.
The credit is calculated based on qualified wages paid to employees during the eligible time period, up to a maximum of $50,000 per calendar quarter.
It's important to note that the credit cannot be claimed by businesses that received a Paycheck Protection Program (PPP) loan. Additionally, businesses must meet other eligibility requirements and follow specific guidelines for claiming the credit.
It's worth noting that while the Recovery Startup Business (RSB) designation allows new businesses to claim the Employee Retention Tax Credit (ERTC), businesses that have expanded or changed ownership do not qualify as RSBs.
According to the IRS, a business is not considered an RSB if it is the result of a significant acquisition, a new trade or business, or a restructuring of an existing business.
This means that businesses that have recently expanded or changed ownership, even if they began operating after February 15, 2020, are not eligible for the RSB designation and cannot claim the ERTC under those criteria.
Instead, businesses that do not qualify as RSBs must meet the regular eligibility requirements for the ERTC, which includes the gross receipts or suspended operations test, and other requirements related to the size of the business, employee retention, and other factors.
The Aggregation Rules
The aggregation rules for the Employee Retention Tax Credit (ERTC) are a set of guidelines that determine how multiple businesses that are under common ownership or control should calculate their eligibility and maximum credit amounts for the ERTC.
If you own more than one business (i.e. two child care centers) the IRS will aggregate them together and combine revenue to determine ERTC eligibility.
the IRS compares the total revenue of all your businesses in 2020 and 2021 versus 2019.
For example, if you have one business that was impacted greatly, and another that did well, you may not qualify because of aggregation. This is because the ERTC program is designed to help businesses that have been significantly impacted by the COVID-19 pandemic.
Under the aggregation rules, businesses that are part of a controlled group, affiliated service group, or a group under common control must combine their gross receipts and employee counts to determine their eligibility for the ERTC.
An affiliated service group is a group of businesses that provide services to each other or have significant ownership or financial ties. A group under common control is a group of businesses that are owned by the same person or group of people.
A controlled group is a group of corporations that are connected through common ownership, such as a parent company and its subsidiaries.
When calculating eligibility and credit amounts under the ERTC, businesses that are part of a controlled group, affiliated service group, or a group under common control must consider all employees and gross receipts of the entire group.
This means that the group's eligibility and credit amounts may be reduced if the group as a whole does not meet the eligibility requirements.
The ERTC is a valuable tax credit for eligible employers who are looking to retain employees during the COVID-19 pandemic. If you believe you qualify for the credit, it is recommended that you consult with a tax professional to determine your eligibility and how to claim the credit.
What is ERTC?
If you're a child care business owner, you may be wondering what the Employee Retention Tax Credit (ERTC) program is and how it can apply to your business.
The ERTC program is a federal tax credit that was created to help employers retain employees during the pandemic.
Under the American Rescue Plan Act of 2021, small businesses that were open during COVID-19 can claim this credit on qualified wages paid between July 1, 2021, and December 31, 2021, even if they received Paycheck Protection Program (PPP) loans.
So, what does this mean for child care providers? It means that if you meet the eligibility requirements, you can claim a credit for up to 70% of qualified wages paid to employees, up to a maximum of $21,000 per employee in 2021 and $5,000 per employee in 2020.
That's a significant amount of financial assistance provided by the government with no strings attached on how you have to spend the money once you receive it.
Child care providers can claim the ERTC on their quarterly employment tax returns using Form 941. Employers can also claim an advance payment of the ERTC by filing Form 7200.
It is recommended that child care providers consult with a tax professional to determine their eligibility and how to claim the credit.
Who Qualifies for ERTC?
Let's take a closer look at the eligibility requirements:
Significant decline in gross receipts
An employer must have experienced a significant decline in gross receipts during a calendar quarter in 2020 or 2021 when compared to the same quarter in 2019.
The decline must be due to the COVID-19 pandemic and its effects on the business. The term "gross receipts" generally refers to all revenue received from any source, including sales, services, interest, dividends, rents, and royalties.
A significant decline in gross receipts is defined as a decline of 50% or more in gross receipts.
For example, if a business had $100,000 in gross receipts in Q1 2019, but only $40,000 in gross receipts in Q1 2020 due to the COVID-19 pandemic, it would meet the requirement for a significant decline in gross receipts and could be eligible for the Employee Retention Tax Credit (ERTC) for that quarter.
Business operations were fully or partially suspended due to a COVID-19-related government order
In addition to experiencing a significant decline in gross receipts, businesses may also be eligible for the ERTC if their operations were fully or partially suspended due to a government order related to COVID-19
This includes orders that required businesses to shut down or reduce operations to slow the spread of the virus.
Employer size
For the first two quarters of 2021, an employer can qualify for the ERTC if it has 500 or fewer employees. For the third and fourth quarters of 2021, an employer can qualify regardless of its size.
Wages paid
Employers can claim the ERTC for qualified wages paid to employees during the eligible time period.
Qualified wages include wages paid to employees who are not providing services due to a COVID-19-related government order or a significant decline in gross receipts.
Employers can claim the credit for up to $10,000 in qualified wages per employee per calendar quarter.
What is a 941 and 7200 Form?
Form 941 is the Employer's Quarterly Federal Tax Return. This form is used to report employment taxes, including Social Security and Medicare taxes, federal income tax withheld from employees, and the employer's share of Social Security and Medicare taxes. Employers who are eligible for the ERTC can claim the credit on their quarterly employment tax returns using Form 941.
Form 7200 is the Advance Payment of Employer Credits Due to COVID-19. This form is used to request an advance payment of the ERTC, as well as other employer tax credits related to the COVID-19 pandemic.
Employers who have already claimed the ERTC on their Form 941 for a quarter can use Form 7200 to request an advance payment of the credit for the same quarter.
It is important to note that both forms have specific eligibility requirements and instructions for use. Employers should consult with a tax professional to determine their eligibility for the ERTC and how to properly complete and file Forms 941 and 7200.
Suspended Operations Test
The suspended operations test is one of the eligibility requirements for the Employee Retention Tax Credit (ERTC).
It applies to businesses that did not experience a significant decline in gross receipts, but instead had their operations fully or partially suspended due to a COVID-19-related government order.
To meet the suspended operations test, a business must have been fully or partially suspended during a calendar quarter due to a government order related to COVID-19.
For example, if a state mandated that all non-essential businesses must close for a period of time due to the pandemic, any business affected by that order would meet the suspended operations test for that quarter.
An employer must demonstrate that it has experienced a more than nominal impact due to the COVID-19 pandemic. This means that the impact of the pandemic on the employer's business must be more than minor, insignificant, or incidental.
To demonstrate a more than nominal impact, an employer must show that it has experienced significant changes in its operations, such as reduced hours, temporary closures, or significant changes to business practices.
Additionally, the employer must be able to show that the changes in its operations were directly caused by the COVID-19 pandemic or related government orders.
For example, a restaurant that had to close its indoor dining area and switch to takeout and delivery only due to COVID-19 restrictions would likely meet the more than nominal impact requirement.
Similarly, a retail store that had to reduce its hours of operation and limit the number of customers allowed in the store due to the pandemic would also likely qualify.
Recovery Startup Business (RSB)
A Recovery Startup Business (RSB) is a new business that began operating after February 15, 2020, and meets certain eligibility criteria for the Employee Retention Tax Credit (ERTC). The RSB designation allows these businesses to claim the ERTC even if they did not have any gross receipts during a quarter in 2019.
For child care providers, an RSB may be eligible for the ERTC if it began operating after February 15, 2020, and before January 1, 2022. Additionally, the RSB must meet the gross receipts or suspended operations test for each quarter in which it is claiming the credit.
The credit is calculated based on qualified wages paid to employees during the eligible time period, up to a maximum of $50,000 per calendar quarter.
It's important to note that the credit cannot be claimed by businesses that received a Paycheck Protection Program (PPP) loan. Additionally, businesses must meet other eligibility requirements and follow specific guidelines for claiming the credit.
It's worth noting that while the Recovery Startup Business (RSB) designation allows new businesses to claim the Employee Retention Tax Credit (ERTC), businesses that have expanded or changed ownership do not qualify as RSBs.
According to the IRS, a business is not considered an RSB if it is the result of a significant acquisition, a new trade or business, or a restructuring of an existing business.
This means that businesses that have recently expanded or changed ownership, even if they began operating after February 15, 2020, are not eligible for the RSB designation and cannot claim the ERTC under those criteria.
Instead, businesses that do not qualify as RSBs must meet the regular eligibility requirements for the ERTC, which includes the gross receipts or suspended operations test, and other requirements related to the size of the business, employee retention, and other factors.
The Aggregation Rules
The aggregation rules for the Employee Retention Tax Credit (ERTC) are a set of guidelines that determine how multiple businesses that are under common ownership or control should calculate their eligibility and maximum credit amounts for the ERTC.
If you own more than one business (i.e. two child care centers) the IRS will aggregate them together and combine revenue to determine ERTC eligibility.
the IRS compares the total revenue of all your businesses in 2020 and 2021 versus 2019.
For example, if you have one business that was impacted greatly, and another that did well, you may not qualify because of aggregation. This is because the ERTC program is designed to help businesses that have been significantly impacted by the COVID-19 pandemic.
Under the aggregation rules, businesses that are part of a controlled group, affiliated service group, or a group under common control must combine their gross receipts and employee counts to determine their eligibility for the ERTC.
An affiliated service group is a group of businesses that provide services to each other or have significant ownership or financial ties. A group under common control is a group of businesses that are owned by the same person or group of people.
A controlled group is a group of corporations that are connected through common ownership, such as a parent company and its subsidiaries.
When calculating eligibility and credit amounts under the ERTC, businesses that are part of a controlled group, affiliated service group, or a group under common control must consider all employees and gross receipts of the entire group.
This means that the group's eligibility and credit amounts may be reduced if the group as a whole does not meet the eligibility requirements.
The ERTC is a valuable tax credit for eligible employers who are looking to retain employees during the COVID-19 pandemic. If you believe you qualify for the credit, it is recommended that you consult with a tax professional to determine your eligibility and how to claim the credit.
What is ERTC?
If you're a child care business owner, you may be wondering what the Employee Retention Tax Credit (ERTC) program is and how it can apply to your business.
The ERTC program is a federal tax credit that was created to help employers retain employees during the pandemic.
Under the American Rescue Plan Act of 2021, small businesses that were open during COVID-19 can claim this credit on qualified wages paid between July 1, 2021, and December 31, 2021, even if they received Paycheck Protection Program (PPP) loans.
So, what does this mean for child care providers? It means that if you meet the eligibility requirements, you can claim a credit for up to 70% of qualified wages paid to employees, up to a maximum of $21,000 per employee in 2021 and $5,000 per employee in 2020.
That's a significant amount of financial assistance provided by the government with no strings attached on how you have to spend the money once you receive it.
Child care providers can claim the ERTC on their quarterly employment tax returns using Form 941. Employers can also claim an advance payment of the ERTC by filing Form 7200.
It is recommended that child care providers consult with a tax professional to determine their eligibility and how to claim the credit.
Who Qualifies for ERTC?
Let's take a closer look at the eligibility requirements:
Significant decline in gross receipts
An employer must have experienced a significant decline in gross receipts during a calendar quarter in 2020 or 2021 when compared to the same quarter in 2019.
The decline must be due to the COVID-19 pandemic and its effects on the business. The term "gross receipts" generally refers to all revenue received from any source, including sales, services, interest, dividends, rents, and royalties.
A significant decline in gross receipts is defined as a decline of 50% or more in gross receipts.
For example, if a business had $100,000 in gross receipts in Q1 2019, but only $40,000 in gross receipts in Q1 2020 due to the COVID-19 pandemic, it would meet the requirement for a significant decline in gross receipts and could be eligible for the Employee Retention Tax Credit (ERTC) for that quarter.
Business operations were fully or partially suspended due to a COVID-19-related government order
In addition to experiencing a significant decline in gross receipts, businesses may also be eligible for the ERTC if their operations were fully or partially suspended due to a government order related to COVID-19
This includes orders that required businesses to shut down or reduce operations to slow the spread of the virus.
Employer size
For the first two quarters of 2021, an employer can qualify for the ERTC if it has 500 or fewer employees. For the third and fourth quarters of 2021, an employer can qualify regardless of its size.
Wages paid
Employers can claim the ERTC for qualified wages paid to employees during the eligible time period.
Qualified wages include wages paid to employees who are not providing services due to a COVID-19-related government order or a significant decline in gross receipts.
Employers can claim the credit for up to $10,000 in qualified wages per employee per calendar quarter.
What is a 941 and 7200 Form?
Form 941 is the Employer's Quarterly Federal Tax Return. This form is used to report employment taxes, including Social Security and Medicare taxes, federal income tax withheld from employees, and the employer's share of Social Security and Medicare taxes. Employers who are eligible for the ERTC can claim the credit on their quarterly employment tax returns using Form 941.
Form 7200 is the Advance Payment of Employer Credits Due to COVID-19. This form is used to request an advance payment of the ERTC, as well as other employer tax credits related to the COVID-19 pandemic.
Employers who have already claimed the ERTC on their Form 941 for a quarter can use Form 7200 to request an advance payment of the credit for the same quarter.
It is important to note that both forms have specific eligibility requirements and instructions for use. Employers should consult with a tax professional to determine their eligibility for the ERTC and how to properly complete and file Forms 941 and 7200.
Suspended Operations Test
The suspended operations test is one of the eligibility requirements for the Employee Retention Tax Credit (ERTC).
It applies to businesses that did not experience a significant decline in gross receipts, but instead had their operations fully or partially suspended due to a COVID-19-related government order.
To meet the suspended operations test, a business must have been fully or partially suspended during a calendar quarter due to a government order related to COVID-19.
For example, if a state mandated that all non-essential businesses must close for a period of time due to the pandemic, any business affected by that order would meet the suspended operations test for that quarter.
An employer must demonstrate that it has experienced a more than nominal impact due to the COVID-19 pandemic. This means that the impact of the pandemic on the employer's business must be more than minor, insignificant, or incidental.
To demonstrate a more than nominal impact, an employer must show that it has experienced significant changes in its operations, such as reduced hours, temporary closures, or significant changes to business practices.
Additionally, the employer must be able to show that the changes in its operations were directly caused by the COVID-19 pandemic or related government orders.
For example, a restaurant that had to close its indoor dining area and switch to takeout and delivery only due to COVID-19 restrictions would likely meet the more than nominal impact requirement.
Similarly, a retail store that had to reduce its hours of operation and limit the number of customers allowed in the store due to the pandemic would also likely qualify.
Recovery Startup Business (RSB)
A Recovery Startup Business (RSB) is a new business that began operating after February 15, 2020, and meets certain eligibility criteria for the Employee Retention Tax Credit (ERTC). The RSB designation allows these businesses to claim the ERTC even if they did not have any gross receipts during a quarter in 2019.
For child care providers, an RSB may be eligible for the ERTC if it began operating after February 15, 2020, and before January 1, 2022. Additionally, the RSB must meet the gross receipts or suspended operations test for each quarter in which it is claiming the credit.
The credit is calculated based on qualified wages paid to employees during the eligible time period, up to a maximum of $50,000 per calendar quarter.
It's important to note that the credit cannot be claimed by businesses that received a Paycheck Protection Program (PPP) loan. Additionally, businesses must meet other eligibility requirements and follow specific guidelines for claiming the credit.
It's worth noting that while the Recovery Startup Business (RSB) designation allows new businesses to claim the Employee Retention Tax Credit (ERTC), businesses that have expanded or changed ownership do not qualify as RSBs.
According to the IRS, a business is not considered an RSB if it is the result of a significant acquisition, a new trade or business, or a restructuring of an existing business.
This means that businesses that have recently expanded or changed ownership, even if they began operating after February 15, 2020, are not eligible for the RSB designation and cannot claim the ERTC under those criteria.
Instead, businesses that do not qualify as RSBs must meet the regular eligibility requirements for the ERTC, which includes the gross receipts or suspended operations test, and other requirements related to the size of the business, employee retention, and other factors.
The Aggregation Rules
The aggregation rules for the Employee Retention Tax Credit (ERTC) are a set of guidelines that determine how multiple businesses that are under common ownership or control should calculate their eligibility and maximum credit amounts for the ERTC.
If you own more than one business (i.e. two child care centers) the IRS will aggregate them together and combine revenue to determine ERTC eligibility.
the IRS compares the total revenue of all your businesses in 2020 and 2021 versus 2019.
For example, if you have one business that was impacted greatly, and another that did well, you may not qualify because of aggregation. This is because the ERTC program is designed to help businesses that have been significantly impacted by the COVID-19 pandemic.
Under the aggregation rules, businesses that are part of a controlled group, affiliated service group, or a group under common control must combine their gross receipts and employee counts to determine their eligibility for the ERTC.
An affiliated service group is a group of businesses that provide services to each other or have significant ownership or financial ties. A group under common control is a group of businesses that are owned by the same person or group of people.
A controlled group is a group of corporations that are connected through common ownership, such as a parent company and its subsidiaries.
When calculating eligibility and credit amounts under the ERTC, businesses that are part of a controlled group, affiliated service group, or a group under common control must consider all employees and gross receipts of the entire group.
This means that the group's eligibility and credit amounts may be reduced if the group as a whole does not meet the eligibility requirements.
The ERTC is a valuable tax credit for eligible employers who are looking to retain employees during the COVID-19 pandemic. If you believe you qualify for the credit, it is recommended that you consult with a tax professional to determine your eligibility and how to claim the credit.
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© 2024 Carline Inc. All rights reserved.
© 2024 Carline Inc. All rights reserved.
The ERTC Program for Child Care Providers
Published Apr 18, 2023
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