As businesses continue to recover from the economic impact of the pandemic, many employers are looking for ways to retain their employees and promote growth. One opportunity that they should not overlook is the employee retention tax credit (ERTC), which can provide significant financial benefits to businesses that qualify.
The ERTC was established by the CARES Act in March 2020 to incentivize employers to keep their workers on the payroll during the pandemic. Under the ERTC, eligible employers can receive a tax credit of up to 70% of qualified wages paid to employees, up to $10,000 per employee per quarter. This means that a business could potentially receive a tax credit of up to $28,000 per employee in 2021.
The ERTC was extended and expanded by the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA), making it even more beneficial for businesses to take advantage of the credit. The CAA extended the ERTC through June 30, 2021, while the ARPA extended it through December 31, 2021.
In addition, the ARPA also expanded the eligibility criteria for employers to qualify for the credit. Previously, businesses were only eligible if they experienced a significant decline in gross receipts or were fully or partially suspended due to government orders related to COVID-19. Now, employers can also qualify for the credit if they experience a significant decline in gross receipts in any quarter of 2021 compared to the same quarter in 2019.
This means that Q3 2021 is the perfect time for businesses to take advantage of the ERTC. If a business experiences a significant decline in gross receipts in Q3 2021 compared to Q3 2019, it can qualify for the credit and potentially receive a significant amount of tax relief. For example, if a business paid $20,000 in qualified wages to an employee in Q3 2021 and qualified for the full 70% credit, it would receive a tax credit of $14,000.
To qualify for the credit, businesses must meet a set of requirements, including:
– Having fewer than 500 employees
– Not receiving a Paycheck Protection Program (PPP) loan or choosing to use the ERTC instead of PPP forgiveness
– Meeting the gross receipts test or the suspension test
Businesses interested in taking advantage of the ERTC should consult with their tax advisor to understand their eligibility and maximize their potential benefits. With Q3 2021 underway, now is the time for businesses to take advantage of the ERTC and receive the financial relief they need to support employee retention and growth.