employee retention tax credit (ERTC) is a federal tax credit offered to eligible employers that retain their employees during the COVID-19 pandemic. The credit is intended to help businesses keep their staff employed and to encourage them to hire new workers.
The ERTC is a refundable tax credit that covers up to 70% of the wages paid to eligible employees between March 13, 2020, and December 31, 2021. This credit can be used to offset the employer’s portion of Social Security tax payments, and any excess can be refunded.
To be eligible for the ERTC, the employer must meet one of the following two criteria:
1. The employer’s operations were fully or partially suspended due to a government order during the quarter.
2. The employer experienced a significant decline in gross receipts over the quarter compared to the same quarter in 2019.
If a business meets either of these criteria, they can receive the ERTC. The credit is calculated based on the qualified wages paid during the period of eligibility. Eligible wages include both salary and benefits, including healthcare.
The credit amount varies depending on the size of the business. For employers with fewer than 500 employees, the credit is based on all wages paid, up to a maximum of $10,000 per employee per quarter. For employers with more than 500 employees, the credit is only available for wages paid to employees who are not providing services.
It is important to note that employers cannot double-dip on relief programs. If an employer receives a Paycheck Protection Program loan, they cannot receive the ERTC for the same wages. However, they can receive the ERTC for wages paid that are not covered by the PPP loan.
The ERTC can only be claimed by the employer on their federal tax return. However, the employer can benefit from the credit all year long by reducing their quarterly payroll tax deposits. If the credit exceeds the employer’s payroll tax liability, the excess can be refunded.
In conclusion, the employee retention tax credit is a valuable tool for businesses that have been impacted by the COVID-19 pandemic. The credit can help them keep their employees on the payroll and provide benefits during a difficult time. To take advantage of the credit, employers should work with a tax professional and ensure they meet the eligibility criteria.