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Opinion: Technology, tax credits are top of mind for contractors

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For contractors these days, technology considerations and tax provisions are top of mind.

I continue to hear this from colleagues and clients with BKD LLP’s national construction practice and the Ozarks Construction Financial Management Association chapter, where I serve as treasurer.

Here’s a breakdown of those areas of focus.

Technology
Contractors are dealing with many technology challenges, including evaluating enterprise resource planning systems and security threats.

Major software vendors have continued to roll out enhancements and upgrades to their ERP platforms, and most have begun hosting their platforms in online storage systems. In addition, some ERP providers have been acquired in recent years, resulting in changes to the platform and level of technical support. With these changes, a contractor should consider its ERP needs and if the current platform is in alignment with the plans for the business. Some items for a contractor to focus on when evaluating an ERP platform include the following:

  • project management functionality or connectivity to an existing project management software;
  • ability to streamline accounts payable processing and create visibility to open commitments; and
  • ability to efficiently capture labor hours and process payroll with multiple pay rates and taxing jurisdictions.

An area where contractors will continue to focus IT spending is securing against cyberthreats.

Cybersecurity awareness training is a critical component to network security and viewed by high-performing contractors as money and time well spent. Spoofed email campaigns run by in-house information technology departments or external consultants are regularly used as training exercises so a real attack in the future isn’t successful.

Employee retention credit
The rules around obtaining the employee retention credit for 2020 under the Coronavirus Aid, Relief and Economic Security Act were very limiting, and many contractors did not qualify.

One qualifying test in 2020 was gross receipts for a 2020 calendar quarter being less than 50% of gross receipts for the same calendar quarter in 2019. With many contractors not ceasing operations and continuing to work through a healthy backlog in 2020, it was rare for a contractor to qualify for the ERC under those terms.

Many construction industry chief financial officers initially looked at the credit in 2020 and found that their company did not qualify, but they overlooked the expansion of the credit for 2021 and are now taking a second look.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 expanded and extended the ERC for calendar year 2021. The refundable credit for federal employer taxes was increased to 70% of up to $10,000 of qualified wages paid per employee per quarter in 2021. Some of the criteria to qualify for and calculate the credit for a calendar quarter in 2021 include the following:

  • Gross receipts for a calendar quarter in 2021 less than 80% of what they were for the same calendar quarter in 2019; alternatively, an employer may elect to use the immediately preceding calendar quarter for purposes of the gross receipts reduction test.
  • Payroll costs paid must not have been used to obtain forgiveness of a Paycheck Protection Program loan.
  • If more than 500 full-time equivalents were employed in 2019, qualified wages are those paid to employees who are not providing services because operations were suspended or due to decline in gross receipts. However, if the average FTEs for 2019 were 500 or fewer, wages paid to all employees during the eligibility period qualify.

It’s not too late for a qualifying contractor to claim the credit for 2020 or 2021. The credit is claimed on the quarterly employment tax return, Form 941, or through an amended return, Form 941-X.

A qualifying employer should retain documentation to support their eligibility for the ERC, including gross receipts test calculations, employee count calculations, payroll records and related employment tax returns.

These are just a few matters that have recently been the focus of CFOs in the construction industry, but these items are not an all-encompassing list, as contractors continue to face the challenges of workforce shortages and the accessibility and pricing of materials.

Matt Cash is a director with BKD LLP. He can be reached at mcash@bkd.com.

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