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Employee Retention Credit Expanded Under the Consolidated Appropriations Act, 2021 - YouTube
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- Hey everyone.
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This is Lucas Rihely from H2R CPA.
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I hope this video finds you well.
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Today we wanted to chat about
the Employee Retention Credit.
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This credit originated in the CARES Act,
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but the recent Stimulus Bill
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included some significant
changes to the law.
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As we'll see, a
retroactive change was made
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to allow PPP borrowers
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to be eligible for the credit in 2020.
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Other changes were made perspectively,
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and these will apply for 2021.
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Let's dig in.
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So as I mentioned,
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this credit originated
under the CARES Act.
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And a lot of the rules
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that are in place for 2020
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are dictated by the
language in the CARES Act.
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The Consolidated Appropriations Act
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which was signed into
law on December 27, 2020,
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made one large retroactive change to 2020,
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being that the PPP borrowers
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are now permitted to take
advantage of the credit,
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but also made significant changes
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that are being applied
prospectively for 2021.
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And as you'll see on
these next few slides,
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we're gonna deal with two sets of rules
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for two different time periods.
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Let's start with the amount
and availability of the credit.
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In looking at the time period for 2020,
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being March to December of 2020,
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the credit is 50% of the qualified wages
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paid during a qualifying quarter.
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Now qualifying wages
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are limited to $10,000
per employee for the year,
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which makes the maximum
employee retention credit
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per employee for 2020 to be $5,000.
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The enhancement in the Stimulus Bill
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that was produced for 2021
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is increasing the credit amount
to 70% of qualifying wages
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during a qualifying quarter,
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but also
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creating that limit of $10,000
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to be applied per quarter,
rather than on an annual basis.
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In other words,
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the maximum employee retention
credit per employee for 2021
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has now been increased to $14,000.
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So which employers are
eligible for the credit?
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Well as I mentioned
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the Paycheck Protection Program recipients
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are now permitted the use of the credit,
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but they also need to qualify
under these conditions.
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For 2020, there are two
conditions that are in place,
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and the employer needs to meet
either of these conditions.
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The first being the business
suspension condition.
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And the business suspension condition,
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is that the employer needed
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to fully or partially
suspend business operations
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for the quarter because
of a governmental order,
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they would qualify for this credit.
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But only wages paid during
the period of suspension
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would qualify for this credit
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if the employer is qualifying
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under the business suspension condition.
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The next condition is a
gross receipts condition.
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And then the gross receipts
condition for 2020,
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the credit is eligible
for the first quarter
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in which the gross receipts in 2020
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are less than half of
the same quarter in 2019.
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So for example, if your gross receipts
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in the second quarter of
2020 are less than half
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of your gross receipts in
the second quarter of 2019,
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you were eligible for the credit
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for the wages paid in that
second quarter of 2020.
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You're eligible quarters will continue
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until
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you have a quarter in 2020,
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that is at least 80% of your
comparative quarter of 2019.
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So if your second quarter
of 2020 is less than half,
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that is your first eligible quarter.
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Your third quarter is say,
70% of your 2019 quarter.
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That is an eligible quarter.
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If your fourth quarter is 81%
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of your 2019 comparative quarter
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that quarter no longer qualifies.
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The Stimulus Bill that was
passed at the end of 2020,
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extended, enhanced this credit.
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And so for 2021, they changed the rules
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regarding the gross receipts condition
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to the benefit of the taxpayer
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The business suspension condition
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there was no change in those provisions.
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The gross receipts condition for 2021
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has been enhanced under
the new stimulus law.
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And that enhancement is to
the benefit of the taxpayer
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by allowing the first
eligible quarter to start
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when receipts are less than
80% when compared to 2019.
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So for example,
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if you're comparing your first
quarter 2021 gross receipts,
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and they are less than
80% of your gross receipts
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for first quarter of 2019,
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and that is your first qualifying quarter.
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Provisions exist in the
law to address businesses
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that were not in existence in 2019.
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And so if you have questions
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regarding those specific conditions
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or if you were a business
that didn't exist in 2019,
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please reach out to us to
see how this applies for you.
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Now, both laws make a distinction
between large employers
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and small employers,
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Under the CARES Act, and
these are the rules for 2020.
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Larger employers are
that are defined as those
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with 100 or more employees.
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Wages paid to an employee
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during a qualifying
quarter for large employers
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only calculate for the credit,
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when they're paid to employees
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who are not providing services.
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For small employers,
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defined as those under
a hundred employees,
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wages paid to an employee during a quarter
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may qualify for the credit,
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regardless of whether the employee
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is performing services
or not for those wages.
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The Stimulus Bill provided for
an enhancement of this credit
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to the benefit of the taxpayer
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by changing the definition
of large employers.
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So for the quarters in
2021 under this credit,
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employers with less than 500 employees
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may pay qualifying wages
to their employees,
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regardless of whether the employees
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earning the wages or not.
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So let's review some key
notes regarding the wages.
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The qualifying wages include,
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allocable qualified health plan expenses
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paid on behalf of the employee,
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as long as those health
plan expenses are excluded
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from the income of the employee.
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Owner wages are eligible for the credit.
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However, employees who have
a familial relationship
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with the owners are not eligible.
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So generally,
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if you are a family member of an owner
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who owns directly or
indirectly 50% of the entity,
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that employee's wages are
not eligible for the credit.
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The law includes provisions
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that prohibit a double
benefit on these credits.
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So for example, if the wages
that are being included
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for employee retention credit
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are also eligible for the FFCRA,
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those wages only eligible
for one particular credit.
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Further,
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if the wages are forgiven
under the PPP loan program,
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those wages are also ineligible
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for the employee retention credit
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to avoid the double benefit.
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So how do we claim the credit?
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Well, if you were originally
eligible in the CARES Act
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you likely would've claimed the credit
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on your second and third quarter, 941s,
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if you were eligible at that time.
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With the retroactive change
to allow PPP borrowers
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to claim the credit,
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those taxpayers would have likely filed
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their second and third
quarter 941s already.
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And now need to claim a "catch-up" credit.
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The law does provide,
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a "catch-up" credit
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to be claimed on the
fourth quarter, Form 941.
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However, as of the date of this video,
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further guidance is expected
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because the 941 forms have
not been amended or corrected
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to provide for this mechanic.
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For the credits occurring in 2021,
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there are three ways to take
advantage of this credit.
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Ultimately, the credit will
be claimed and reconciled
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on the quarterly 941 payroll tax returns.
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So you may wait until you
file your first quarter
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or second quarter 941s
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that claim the credit for that quarter.
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If you were anticipating
qualifying for this credit,
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you may request advanced
payments of the credits
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by submitting Form 7200 to the IRS,
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or the quickest way to realize
the benefit of this credit
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if you're anticipating qualifying,
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is by reducing your federal tax deposits
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during the qualifying quarter
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as you're running your payroll processes.
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We hope that you found that video helpful.
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Our team H2R CPA has stayed up to date
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on this change and many others.
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If you have questions on
how this credit applies
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to your specific situation, or you're
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dealing with other business
tax and financial issues
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that you need our help on.
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Please visit our website at
h2rcpa.com for more information.
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Thanks and stay safe.
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