How to Take Advantage of the Employee Retention Tax Credit: A Step-by-Step Guide

The employee retention tax credit (ERTC) is an incentive for businesses to keep their employees on payroll during the COVID-19 pandemic. The credit reimburses employers for a percentage of wages paid to eligible employees who were retained, despite experiencing financial hardship. Eligible employers can receive up to $5,000 for each eligible employee. Here’s how to take advantage of the ERTC:

Step 1: Determine Eligibility

To take advantage of the ERTC, you must meet specific eligibility requirements. The first step in the process is to evaluate these requirements. There are three main criteria to qualify for the ERTC:

1. The business must have been fully or partially suspended by a government order due to COVID-19, or have experienced a significant decline in gross receipts (more than 50%) for any quarter in 2020 as compared to the same quarter in 2019.
2. The business must have had an average of 100 or fewer full-time employees in 2019.
3. The wages must have been paid between March 13, 2020, and December 31, 2020.

Step 2: Calculate the Credits

The amount of credits will depend on the number of eligible employees you have and the wages you paid them. The maximum credit an employer can receive is $5,000 per eligible employee.

Step 3: File for the ERTC

You can claim the ERTC by filing an amended Form 941 or by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The IRS has provided guidance and instructions on how to file for the ERTC. It is essential to follow these instructions accurately and ensure all relevant information is included in the submission.

Step 4: Keep Accurate Records

It is essential to maintain accurate records to support your ERTC claim. This documentation should include information such as employee wages and the basis for your eligibility for the credit. The IRS can request documentation to support your claim, so it is essential to keep these records for at least 4 years.

The Bottom Line

The ERTC is a valuable incentive for businesses to keep their employees on payroll during times of economic hardship. By following the steps outlined above, eligible employers can take advantage of the credit and receive financial support during the COVID-19 crisis. It is essential to ensure that all requirements are met, and all relevant documentation is maintained to support the ERTC claim. By doing so, businesses can receive much-needed financial assistance and retain their best employees during a difficult time.