The employee retention tax credit (ERTC) is a federal tax credit designed to help businesses keep their employees during times of economic hardship, such as the COVID-19 pandemic. The program was introduced as part of the CARES Act in March 2020, and it has been extended multiple times, the most recent extension being the American Rescue Plan Act of 2021. However, the final call for applications for the ERTC is coming up soon, and businesses that have not yet applied need to act quickly.
The ERTC provides businesses with a tax credit of up to $5,000 per employee for wages paid between March 13, 2020, and December 31, 2021. The credit is available to businesses that experienced a significant decline in gross receipts, which is defined as a decline of 20% or more compared to the same quarter in the previous year. It is also available to businesses that were fully or partially suspended due to COVID-19 restrictions.
The credit is calculated based on a percentage of qualified wages paid to eligible employees. Qualified wages are wages paid to employees during the period when the business is experiencing a decline in gross receipts or when the business is suspended. Eligible employees are employees who are not related to the business owner and who are not receiving certain other tax credits, such as the Work Opportunity tax credit or the Empowerment Zone Employment credit.
To claim the credit, businesses need to file Form 941, Employer’s Quarterly Federal tax Return, for the applicable periods. The credit can be claimed against the employer portion of Social Security taxes on Form 941 or can be refunded to the business. Businesses that have already paid their Social Security taxes for the applicable periods can apply for a refund of the credit using Form 7200, Advance Payment of Employer Credits Due to COVID-19.
The final call for ERTC applications is rapidly approaching. Businesses need to act quickly to ensure that they are eligible and that their applications are submitted on time. The last day to claim the credit for qualified wages paid in 2020 is May 17, 2021, and the last day to claim the credit for qualified wages paid in the first and second quarters of 2021 is July 19, 2021.
In conclusion, the ERTC is a valuable program that can help businesses keep their employees during difficult times. The program has been extended multiple times, but the final call for applications is coming up soon. Businesses that have not yet applied for the credit need to act fast to ensure that they are eligible and that their applications are submitted on time. The ERTC can provide much-needed financial support to struggling businesses, so it is important to take advantage of this opportunity before it is too late.