As the world continues to navigate the ongoing pandemic, businesses are still grappling with its economic impacts. To help both businesses and their employees, the employee retention tax credit (ERTC) has been extended into Q3 of 2021, offering employers a valuable tax credit for retaining employees.
Here is everything you need to know about the ERTC in Q3 of 2021.
What Is the employee retention tax credit?
First passed within the CARES Act in 2020, the ERTC is a federal tax credit designed to help employers impacted by the COVID-19 pandemic and its economic fallout. The credit is offered to employers who keep employees on their payroll despite revenue losses, offering up to $5,000 per eligible employee.
The ERTC was originally set to expire at the end of 2020 but has been extended into 2021, with changes made to the tax credit‘s requirements and limitations to allow for broader eligibility and use.
What Are the Changes to the ERTC in Q3 of 2021?
In Q3 of 2021, the ERTC has undergone several significant changes to increase its value to employers. These changes include:
– An increased credit rate: Employers can now claim a maximum credit of $7,000 per employee per quarter, a substantial increase from the previous maximum of $5,000.
– Expanded eligibility: Businesses with a decline in gross receipts of more than 20% in any quarter of 2021 compared to the same quarter in 2019 may now qualify for the ERTC. Previously, businesses could only qualify if their gross receipts declined by more than 50% for a quarter.
– Larger business eligibility: Previously, businesses had to have fewer than 500 employees to qualify for the ERTC. Now, businesses with up to 1,500 employees may be eligible, opening up the credit to a larger group of employers.
– Start-up business eligibility: Start-up businesses established after February 15, 2020, can also now qualify for the ERTC, providing an additional layer of support for new businesses during challenging economic times.
How Can Employers Apply for the ERTC?
To apply for the ERTC, employers must fill out Form 941, the Employer’s Quarterly Federal tax Return. Eligible employers can then reduce their federal employment tax deposits by the amount of the ERTC they are eligible to claim.
Employers can also request an advance payment of the ERTC by filing Form 7200, the Advance Payment of Employer Credits Due to COVID-19.
Final Thoughts
The ERTC is a valuable tax credit for employers in Q3 of 2021, providing support for businesses impacted by COVID-19 and helping them retain valuable employees during uncertain times. By staying informed about the ERTC’s requirements and limitations, businesses can take full advantage of this tax credit to support their operations and employees.