employee retention tax credit (ERTC) is a tax credit designed to help employers retain their employees during economic hardships caused by the COVID-19 pandemic. This credit allows eligible employers to receive a refundable tax credit of up to $5,000 per employee for wages paid between March 13, 2020, and December 31, 2021. The ERTC has been extended until December 31, 2021. If you are an employer who is interested in this tax credit, here’s a guide to help you understand eligibility and the application process.
Eligibility
To be eligible for the ERTC, an employer must meet the following criteria:
An employer who has experienced a significant decline in gross receipts due to the pandemic. A decline of more than 50% compared to the same quarter in the previous year, or a partial or full suspension of operations due to the government-mandated COVID-19 restrictions.
For employers with less than 100 full-time employees, ERTC is available to wages paid to any employee, regardless of the employee’s working status.
For employers with more than 100 full-time employees, ERTC is available to wages paid to employees who are not providing services due to COVID-19-related circumstances.
Application Process
If you are an eligible employer, you can claim the ERTC on your federal payroll tax returns for the tax period in which the qualified wages were paid. You can claim these credits by reporting it on Form 941, Employer’s Quarterly Federal tax Return or Form 7200, Advance Payment of Employer Credits Due to COVID-19.
The ERTC is refundable, and you can claim the credit even if you do not owe any payroll taxes. The IRS will issue a refund for the excess credit amount. It’s important to note that you cannot claim the ERTC on the same wages for which you are claiming the Work Opportunity tax credit or Family and Medical Leave Act credit.
Conclusion
The ERTC is a valuable tax credit that can help eligible employers retain their employees during these tough economic times. If you think you are eligible for the ERTC, it’s worth applying for the credit. Understanding the eligibility criteria and application process is crucial in making the most out of this tax credit. Contact your tax professional or the IRS for additional information on the ERTC.