The employee retention tax credit (ERTC) has been a game-changer for employers since its introduction as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020. The incentive has helped businesses significantly reduce staffing costs and keep employees on their payroll, despite the challenges posed by the COVID-19 pandemic.
As we enter the third quarter of 2021, the ERTC remains a valuable tool for employers of all sizes looking to stabilize their workforce and navigate the changing economic landscape. Here are some key facts about the ERTC that employers should know:
What is the ERTC?
The ERTC is a refundable tax credit for businesses that have experienced significant declines in revenue or were forced to close or reduce operations due to the pandemic. Eligible employers can claim a credit of up to $7,000 per employee per quarter for wages paid from July 1, 2021, through December 31, 2021.
The credit is available to businesses of all sizes, including tax-exempt organizations, but certain restrictions apply to state and local governments and their instrumentalities, as well as businesses that received Paycheck Protection Program (PPP) loans.
How does the ERTC benefit employers?
The ERTC provides a financial cushion to employers who have been hit hard by the pandemic and helps them retain their workforce. By reducing payroll costs, businesses can focus on other areas of their operations, such as growing their customer base, improving products and services, and investing in new technologies.
The credit can also be used to provide additional benefits to employees, such as paid time off, health insurance, or retirement benefits, which can help boost morale and reduce turnover.
What are the eligibility requirements for the ERTC?
To be eligible for the ERTC in Q3 2021, employers must meet one of two criteria:
– A significant decline in gross receipts: If a business’s gross receipts for a calendar quarter in 2021 are less than 80% of the gross receipts for the same quarter in 2019, the business is eligible for the credit for wages paid after June 30, 2021, and before January 1, 2022.
– Full or partial suspension of operations: If a business’s operations are fully or partially suspended due to a government order related to COVID-19 during any calendar quarter in 2021, the business is eligible for the credit for wages paid during that quarter.
How can employers claim the ERTC?
Employers can claim the ERTC on their quarterly tax returns or by filing an amended return. To claim the credit, employers must keep accurate records of all employee wages, hours worked, and eligible expenses related to the credit.
Employers can also work with tax advisors and payroll companies to determine eligibility and maximize the credit amount.
Conclusion
The employee retention tax credit remains a valuable incentive for employers in Q3 2021, as the COVID-19 pandemic continues to present challenges to businesses of all sizes. Employers who have experienced significant declines in revenue or were forced to close or reduce operations should explore the ERTC as a way to reduce staffing costs and retain their workforce. By taking advantage of the ERTC, employers can focus on improving their operations and emerging stronger from the pandemic.