The Paycheck Protection Program (PPP) loans from last summer were a lifeline for so many travel agency owners across the United States. While many advisors were forced to sell their business or rethink their agency operations as a whole, many were able to make it through the pandemic with help from the PPP.
Now, more than a year after PPP round one passed, advisors are still waiting for revenue to pick up as travel demand in the United States continues its steady climb back to some kind of normal. According to the American Society of Travel Advisors, while demand is rebounding, travel advisors will not see the commissions from bookings until eight months from now, leaving another period for advisors to survive.
While many advisors have exhausted both rounds of PPP, there is a separate program that also was created as part of the CARES Act that may provide a lifeline for travel advisors who have employees and that’s the Employee Retention Tax Credit (ERTC).
While the ERTC isn’t ideal for all travel advisors, it is available for many depending on circumstances surrounding both 2020 and 2021 business along with how your business is structured.
Here is some of what advisors need to know about ERTC:
What is it?
The Employee Retention Tax Credit (ERTC) provides business owners who have had their operations fully or partially suspended due to orders from the government with a 50% credit of each employee’s first $10,000 of payroll costs between March 13, 2020, and the end of December 2020, excluding the period an agency might have been utilizing Paycheck Protection Program.
While those dates have passed, the ERTC is retroactive and can still be claimed in 2020 and recent changes extended the ERTC through the end of 2021 that allowed for a 70% credit of each employee’s first $10,000 of payroll costs for Q1 and Q2 in 2021 (again excluding PPP).
The means, depending on qualifications, agency owners can get $7,000 of a $10,000 employee salary covered for each quarter of 2021. And, if they haven’t claimed it already, advisors can do the same at a 50% rate for 2020.
Here is how the IRS puts the 2021 credit on its website:
As a result of the new legislation, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021. This is outdated – they extended through Q4 of 2021 per the American Rescue Act enacted 3/11/21. Here is an IRS citation stating such: https://www.irs.gov/newsroom/american-rescue-plan-extends-employee-retention-credit
Who is eligible?
ERTC isn’t a fit for all advisors. For larger agencies with employees, it can be critically important but fewer agencies will qualify for it versus PPP because of the IC model that the industry has continued to adopt.
Employers who have had a revenue reduction in 2020, with gross receipts declining by more than 20% in any quarter of 2020 compared to 2019, are eligible. According to the IRS, these are the eligibility requirements for 2021:
Effective January 1, 2021, employers are eligible if they operate a trade or business during January 1, 2021, through June 30, 2021, and experience either:
- A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).
What are the limits?
The maximum credit is $7,000 per eligible employee per quarter (a total of $14,000 per employee for 2021 through June 30) for 2021. It is $28k through Q4 now.
The ERTC excludes salaries covered by PPP1—if an employer received PPP loans, they can still utilize the ERTC, just not for the salaries covered by the PPP payments. Here’s how the IRS puts it once again:
Retroactive to the March 27, 2020, enactment of the CARES Act, the law now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.
However, there is some flexibility for agency owners who have received PPP payments—employers can “toggle” between PPP or ERTC claims for each payroll period. As long as advisors are following PPP rules, the two can be used at the same time.
For instance, if an agency’s payroll is high enough to use a 60% minimum of PPP2 in 24 weeks, then an Agency should utilize the entire 24 weeks for PPP Forgiveness. The key to toggling between PPP & ERTC in your 24 week period is that you do not have to submit 24 weeks of payroll. For forgiveness, you only submit the amount of payroll in 24 weeks that meets the 60% minimum required for PPP forgiveness, utilizing the remaining payroll to qualify for ERTC.
How can advisors use the credit?
Signature, in its presentation to its members, recommends that advisors who use a payroll company contact them to talk about ERTC and those who use an accountant do the same.
It is important to remember that with greater demand now coming in if an agency opts to hire someone now, they can offset $7,000 a quarter of their salary with the ERTC. It’s also important to remember that the IRS is allowing agencies to defer payroll taxes until the end of the quarter and, instead of requiring advisors to pay them, the IRS will send a check for the difference between the ERTC and the payroll taxes owed.
Also, while the ERTC was part of the CARES Act and was again renewed this year, it hasn’t been as advertised as the PPP. So while advisors might have to go out of their way to claim it, it’s well worth their time if they qualify.
A special thanks to Alex Sharpe and Signature Travel Network for sharing its ERTC member presentation with TMR.