Even though the Nebraska governor, Pete Ricketts, refused to mandate a shutdown for businesses, it was inevitable that there’d be a financial impact during COVID-19.
To alleviate this burden somewhat, the Employee Retention Credit was rolled out to provide eligible businesses a way to claim a tax credit if they retained and paid an element of their staff.
From understanding the calculation and claiming process to unraveling audits, this Nebraska Employee Retention Credit guide will highlight the main areas you should be aware of.
But, if you just want to get in touch with our experts, check out our ERC Attorneys services.
What is the Nebraska employee retention credit?
The Nebraska employee retention credit is a tax credit for businesses that have been adversely affected by the COVID-19 pandemic. It’s calculated at 70% of the qualified wages disbursed to employees between March 13, 2020, and December 31, 202, capped at $7,000 per employee per quarter.
For Nebraska-based businesses, understanding the nuances of how the ERC applies to their state is vital. It not only helps in retaining employees but also contributes to the overall financial stability and resilience of businesses.
Eligibility for the Nebraska ERC grant
Employers, including tax-exempt organizations, are eligible for the Nebraska ERC grant if their operations during the calendar year 2020 faced either of the ERC qualifications:
- The complete or partial suspension of operation during said calendar year as a result of government mandate on COVID-19.
- A significant decline in gross receipts, meaning your revenue is less than 50% compared to 2019 of the same quarter.
The first point above doesn’t apply due to the State’s aggressive stance on not forcing businesses to shut down, so it’s simply a matter of checking whether your gross receipts declined significantly enough to make a claim.
The ERC Nebraska calculation
Calculating the ERC in Nebraska is straightforward but a bit complex. However, accuracy is important to avoid complications, since the criteria and rules have evolved. With this in mind, the credit calculations for the years 2020 and 2021 vary.
To determine the retention credit for 2021, Nebraska businesses can qualify if they:
- Meet the criteria for a significant decline in gross receipts.
- Have maintained fewer than 500 employees during the said period.
- Can clearly identify qualifying wages using the ERC requirements.
- Can file their return on time.
Remember, eligible wages are limited to $10,000 per employee per quarter. The credit is calculated at 70% of these eligible wages.
For the ERC in 2020, the underlying principles remain similar, but there are notable differences. The ERC calculation rate is 50% instead of 70%. Moreover, if companies have more than 100 employees in 2020, they do not qualify for the ERC Nebraska.
How to apply for the ERC in the Cornhusker State
The ERC application process is a case of providing specific information:
- Details related to their qualified wages
- The associated health insurance costs for each quarter
You can use the Form 941 to report your quarterly employment tax returns. This reporting starts in the second quarter.
The ERC in Nebraska is applied against the employer's share of social security tax. After the deduction, you can apply for a refund of any excess credit using standard procedures.
Claiming PPP & ERC together
The Consolidated Appropriations Act made some amendments to the original terms of Paycheck Protection Program (PPP) loans.
The news release by the IRS permits businesses the "deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the program."
However, under the revised guidance of the CARES Act, it is explicitly stated that "no deduction is denied, no tax attribute is reduced, and no basis increase is denied because of the exclusion from gross income of the forgiveness of an eligible recipient's covered loan."
This pivotal change made the news release of IRS guidance on disallowed guidance is now obsolete. Thus, it allows businesses to simultaneously claim the ERC and PPP benefits at the same time.
However, it's crucial to navigate this path cautiously, as there are potential pitfalls that businesses should be mindful of and strive to avoid.
Nonprofits & the Employee Retention Credit in Nebraska
Nonprofit organizations, including churches, are eligible for employee retention tax credits, much like regular small businesses.
However, nonprofits in Nebraska must satisfy the gross receipts test.
When filing, nonprofits use Form 941-X, with the credit amount subsequently reported on Form 990. The actual amount of ERC for nonprofits is based on qualified wages and the number of employees involved in the organization's operations.
Is the ERC taxable in Nebraska?
No, the ERC isn't taxable in Nebraska. ERC credits are not specifically categorized as taxable income. However, they can have an indirect impact on your tax liability through adjustments in payroll deductions.
It's crucial to understand the relationship between the ERC and taxable income to ensure accurate reporting using forms 1120-S and 1065.
The extent to which the ERC affects your tax returns is contingent upon several factors:
- Amount claimed under the credit
- Deductions taken for payroll expenses during the year, and
- Specific business entity type.
Understanding ERC audits
As with any tax credit or deduction, it's essential to ensure that you're correctly claiming the ERTC while adhering to the rules and regulations of the Internal Revenue Service.
Take note, the IRS has the authority to conduct audits, but you can mitigate the likelihood of undergoing such an audit. Additionally, it's wise to be well-prepared in case your Nebraska-based business undergoes an ERC audit.
In our detailed guide, we cover:
- Strategies and best practices to reduce the risk of an audit in Nebraska.
- Understanding the timeframe within which audits may occur for businesses and how this impacts your compliance.
- Guidance on the actions to take if your business receives notification of an impending audit, helping you navigate the process effectively.
Scams to be aware of
The prevalence of employee retention credit scams is on the rise. Fraudsters use various tactics to deceive businesses and exploit the program, despite warnings issued by the IRS.
While the Employee Retention Credit is a valid refundable tax credit, be aware of these common scams:
- Collections: Fraudsters file ERC claims on behalf of Nebraska businesses and divert a substantial portion of the credit for their own gain.
- Identity Theft: In some cases, scammers target businesses that do not meet ERC eligibility criteria. They acquire sensitive information and use stolen identities to fraudulently apply for the credit.
- Phone Calls: Scammers often reach out to employers in Nebraska via phone, making false claims regarding ERC eligibility. They may disregard government-mandated requirements and charge exorbitant fees for unnecessary services, even when the employer genuinely qualifies for the credit.
To shield yourself against these scams, ttake these precautions:
- Collaborate with trusted tax professionals who are well-versed in ERC regulations — such as Brotman Law.
- Verify eligibility criteria to ensure that your business qualifies for the ERC.
- Maintain direct and personal communication with advisors to avoid potential fraud.
- Familiarize yourself with the precise ERC requirements.
- Exercise caution when encountering unsolicited advice or offers that seem too good to be true.
How Brotman Law can help
If your business faced the challenging situation of experiencing a significant drop in gross receipts, the ERC could serve as a valuable financial lifeline.
Should you have additional inquiries regarding these policies or need an ERC tax attorney to help you, do not hesitate to reach out to the Brotman Law offices. We are dedicated to providing assistance and guidance tailored to your business.
The Employee Retention Credit (ERC) holds significant value for businesses that have faced disruptions due to the pandemic. As a legitimate refundable tax credit, it can provide much-needed financial support to help businesses stay afloat.
However, you must be vigilant against the rising threat of ERC scams, which can lead to financial losses and legal complications.
To safeguard your interests, you should work closely with trusted tax professionals, such as our ERC experts here at Brotman Law.
The US states we support through the ERC