As a business owner, getting a tax credit that boosts the bottom line is always a welcome development. The employee retention tax credit (ERTC) is one such tax credit that businesses can take advantage of.
What is the employee retention tax credit?
The ERTC is a tax credit that was introduced to encourage businesses to retain their employees during the COVID-19 pandemic. The credit is available to eligible employers who have had to either fully or partially suspend their operations due to government orders or a significant drop in revenue.
The ERTC allows eligible employers to claim a tax credit of up to $5,000 per employee for the 2020 tax year and up to $28,000 per employee for the 2021 tax year. The credit is calculated as 50% of qualified wages paid to employees during the specified period.
Who is eligible for the ERTC?
To be eligible for the ERTC, businesses must have experienced a significant decline in revenue due to COVID-19. Businesses can qualify for the credit if they have experienced either of the following:
– A full or partial suspension of operations due to a government order
– A significant decline in gross receipts
A significant decline in gross receipts is defined as a decline of 50% or more in gross receipts compared to the same quarter in the previous year. Businesses can continue to claim the ERTC until their gross receipts exceed 80% of the gross receipts for the same quarter in the previous year.
How can businesses claim the ERTC?
Businesses can claim the ERTC by filing Form 941, the employer’s quarterly federal tax return. Employers can claim the credit against the employer’s portion of Social Security taxes. Employers who have already submitted their Form 941 for the applicable quarter can file an amended Form 941-X to claim the credit.
Conclusion
The ERTC is a valuable tax credit that can help businesses boost their bottom line. Businesses that have experienced a decline in revenue due to COVID-19 should consider taking advantage of this credit. By retaining their employees, businesses can not only reduce their labor costs but also help build a more loyal and dedicated workforce.