Can A Bank Qualify For Employee Retention Credits?

What is an Employee Retention Credit?

The Employee Retention Credit (ERC) was enacted in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020 to encourage eligible employers financially impacted by the COVID-19 pandemic to keep employees on their payroll. The Consolidated Appropriations Act (CAA) stimulus package signed in late December 2020 included an expansion of the ERC for eligible employers that continue to pay employee wages during COVID-19 closures or after experiencing reduced revenue.The ERC provides a payroll tax credit equal to:

• In 2020, 50% of the qualified wages (including qualified health plan expenses) that an eligible employer paid in a calendar quarter in 2020. For eligible employers with 100 or fewer FTE employees, all wages paid qualify for the credit. The maximum amount of qualified wages taken into account for all calendar quarters in 2020 is $10,000 for a maximum credit of $5,000 per employee.
• For Q1 & Q2 2021, 70% of the qualified wages (including qualified health expenses) that an eligible employer paid in a calendar quarter in Q1 and/or Q2 2021. For eligible employers with 500 or fewer FTE employees, all wages paid qualify for the credit. The maximum amount of qualified wages taken into account for Q1 and Q2 of 2021 is $10,000 per quarter for a maximum credit of $14,000 per employee.

If the business qualifies for the ERC, the credit can be claimed on an originally filed Form 941 payroll tax return or an amended Form 941-X up to 3 years after the original filing date. This provides additional time for companies to await further IRS guidance, gather data and document their facts and circumstances if they meet the criteria for the ERC.Can a Bank Qualify as an Eligible Employer? For 2020, eligible employers are those businesses with operations that:

• have been partially or fully suspended by governmental orders due to COVID-19, or
• have a significant decline (50% or more decline) in gross receipts compared to the same calendar quarter in 2019.

For January 1, 2021 through June 30, 2021, eligible employers are those businesses with operations that:

• have been partially or fully suspended by governmental orders due to COVID-19, or
• have a significant decline (20% or more decline) in gross receipts compared to the same calendar quarter in 2019.

Most banks have not met the 50% decline in gross receipts test during 2020 and may not meet the 20% reduction in 2021 due to PPP fee income. However, banks that have not participated in the PPP program or expect a sharp decline in their gross receipts during the first half of 2021 may qualify.Does a Lobby Closure Qualify as a Partial Suspension of Operations?Many banks have closed lobbies or changed hours as a result of the pandemic, but remained open as an essential business via the drive-thru, ATM, mobile banking, and appointment-only meetings with customers. So, the question is whether the lobby closures were a result of a governmental order or voluntary actions of the bank. If these closures resulted from a governmental order (state or local), a bank could potentially qualify for the ERC based on documented facts and circumstances that align with current guidance.Currently, there is limited guidance on the definition of full or partial suspension of operations due to governmental orders for essential businesses. The IRS has issued Frequently Asked Questions (FAQs) to help define full or partial suspension of operations, but this guidance is their informal interpretation which is subject to change and cannot be relied upon as legal authority. FAQs #30 and #34 provide some guidance for essential businesses, but only if their facts and circumstances are similar.Next Steps:We suggest each bank reviews the facts and circumstances of their lobby or branch closures by answering the following questions. If you answer “YES” to any of these, you may qualify for the Employee Retention Credit.

1. Have the bank’s 2020 gross receipts decreased by 50% or more from 2019?
2. Does the bank anticipate Q1 or Q2 gross receipts declining by 20% or more from 2019?
3. Did branch lobby(s) close as a result of a governmental order(s) as opposed to being voluntary?
4. Did branch lobby(s) re-open as a result of the governmental order(s) being lifted?
5. Were any other parts of the bank’s business suspended as a result of a governmental order?

As an essential business, banks have more hurdles to qualify for the Employee Retention Credit unless there is a decline in gross receipts. The IRS has not stated whether it will issue more clarification or legislation on the ERC other than the current FAQs. If your facts and circumstances seem uncertain to support the ERC based on current guidance, there is no rush. With the 3 year statute of limitations for filing amended payroll tax returns, you have time to await further guidance from the IRS.

We Can Help

Elliott Davis helps customers work through the nuances of their circumstances to determine eligibility for the Employee Retention Credit. If you have additional questions or would like to discuss further, please contact Beverly Seier or Jacob Pensler with any questions.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.