Breaking down the background of disaster relief tax credits; the eligibility; and nuances of the analyzation.
Disaster Credits 101:
As a Senior Tax Analyst, I calculate the disaster tax credits for our largest clients. Most importantly, I always ensure the client receives the maximum eligible credit. I have calculated more than a few disaster credits that were more than $1M, several of which were multi-million-dollar credit packages. Without the type of calculation that I do, the amount of credit the client receives could never be determined.
You might be wondering what a disaster relief tax credit is and how you determine eligibility. Well, if so, let me break this down for you… The President first must declare a major disaster. This can be any natural event, including any hurricane, tornado, storm, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought, or, regardless of cause, fire, flood, or explosion. When one of these events happens, the President determines the severity and if it is beyond the combined capabilities of state and local governments to respond.
Earlier this year when the Coronavirus pandemic started, the President declared a disaster. To provide economic relief to individuals and businesses impacted by the pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law. With that, there was a tax credit called the ERC (Employee Retention Credit) which provides a refundable payroll tax credit up to $5,000 per employee to organizations impacted by COVID-19.
In addition, there are other disaster relief credits that many companies qualify for. On December 20, 2019, IRC §38 was modified when H.R. 1865 (116), the Further Consolidated Appropriations Act of 2020 was signed into law (Public Law No: 116-94). This provided tax relief based on wages paid to employees whose principal place of employment at the time of the natural disaster(s) was in a specified disaster zone that was impacted because of those disasters.
Here are a few qualified disasters for which the credit is available, as well as a comprehensive reference map of all current US regions with designated disaster zones:
- Hurricanes Florence and Michael (2018)
- California wildfires (2017, 2018)
- Hurricanes Harvey, Irma, and Maria (2017)
Some of these impacts can factor into eligibility:
- Did your business lose power?
- Were your employees unable to get to work?
- Were deliveries delayed?
- Were your sales down?
- Did you incur additional expenses?
- Did your location close?
If you answer yes to any of those questions above – you may be eligible for some disaster relief tax credits and that is where my knowledge and experience come into play. As a Senior Tax Analyst at Synergi Partners, focusing on disaster credits, I work closely with my clients to determine their impact period based on their key performance indicators (i.e., Total Sales, Gross Profit). I use those indicators to show that the disaster was the direct cause of the decrease in the client’s business.
Given these Impact Period dates, I take the client’s payroll and determine which wages were earned during the Impact Period and use these wages to allocate credit amounts. An eligible employee can receive up to 40% of eligible wages up to $6,000, or $2,400 in tax credits. Essentially, I determine exactly how much credit our client is eligible to receive. I ensure that the client receives the maximum credit amount.
I feel blessed, especially during this time that a disaster affects the entire country, that I get up every day and I go to work. In almost two years of working for Synergi Partners, I have gained an enormous amount of experience and insight into the disaster tax credit world and I am thankful that I get to use my knowledge to help my customers.