Unlocking the Benefits of Employee Retention Tax Credit: What You Need to Know and How to Apply

As an employer, retaining top talent in your business can be a major challenge. From offering competitive compensation to fostering a positive work environment, it can take a lot of effort to keep your employees satisfied and engaged. Fortunately, there is a tax credit available to employers who invest in employee retention: the employee retention tax credit (ERTC).

The ERTC was initially introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 to help employers keep their employees on payroll during the pandemic. However, it has since been extended and expanded to include more businesses and provide greater financial benefits.

What is the employee retention tax credit?

The ERTC is a federal tax credit available to qualified employers who retain their employees during certain periods of time. It is designed to incentivize employers to keep their employees on payroll rather than laying them off or furloughing them. The credit can be used to offset the employer’s portion of Social Security taxes (6.2% of qualifying wages), up to a maximum credit of $7,000 per employee per quarter.

Who is eligible for the ERTC?

Under the Consolidated Appropriations Act, 2021, the ERTC is available to employers who experienced a significant decline in revenue due to the COVID-19 pandemic. Specifically, eligible employers include those who:

– experienced a full or partial suspension of operations due to a government order related to COVID-19, OR
– experienced a significant decline in gross receipts (less than 50% of the same calendar quarter in 2019).

Additionally, employers with fewer than 500 employees can claim the credit for wages paid to employees during the period of eligibility.

How to Apply for the ERTC

To claim the ERTC, employers must file IRS Form 941, Employer’s Quarterly Federal tax Return. The credit is claimed on Line 11c of the form, where employers can enter the total amount of qualified wages that are eligible for the credit. The credit can then be used to offset the employer’s portion of Social Security taxes on Form 941.

Employers can claim the credit for wages paid between March 13, 2020, and December 31, 2021. For wages paid in 2020, the credit is 50% of qualified wages, up to a maximum of $10,000 per employee. For wages paid in 2021, the credit is 70% of qualified wages, up to a maximum of $10,000 per employee per quarter.

In Conclusion

The ERTC can provide significant financial benefits to employers who invest in employee retention during the COVID-19 pandemic. By keeping employees on payroll, employers can not only retain their talented workforce but also reduce their tax liability. If you are an employer who has experienced a significant decline in revenue due to the pandemic, it may be worthwhile to apply for the ERTC and unlock its benefits.