As we enter the new year of 2022, businesses should take advantage of the employee retention tax credit (ERTC) opportunity to retain their employees and lower their tax liabilities. Employers, who have suffered a significant decline in gross receipts or have been fully or partially shut down due to the COVID-19 pandemic, are eligible to claim the ERTC. However, many companies are still unaware of this opportunity or are hesitant to take advantage of it, which could be a costly mistake.
The ERTC is a refundable tax credit that was introduced in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERTC was extended and expanded by the Consolidated Appropriations Act (CAA) of 2021, which was enacted on December 27, 2020. Under this act, eligible employers can claim the ERTC for wages paid from January 1, 2021, through December 31, 2021. The credit is worth up to 70% of qualified wages paid to eligible employees, up to $10,000 per employee per quarter.
To qualify for the ERTC, employers must meet one of two criteria:
1. The employer experienced a significant decline in gross receipts.
2. The employer was partially or fully suspended due to a government order related to COVID-19.
The decline in gross receipts must be at least 20% for the first quarter of 2021 compared to the same quarter in 2019. If the employer didn’t exist in 2019, it can use the corresponding quarter of 2020 for reference. Alternatively, if an employer’s gross receipts don’t meet the eligibility criteria in one quarter, it can still qualify if its gross receipts decline by 20% or more in a subsequent quarter.
The ERTC can be applied to both full-time and part-time employees, including those who were furloughed or had reduced hours due to the pandemic. Employers can claim the credit for any qualified wages paid during the eligible period, including health plan expenses. However, there are certain limitations on wages and qualified expenses for each eligible employee, which must be carefully evaluated to ensure that the credits are claimed correctly.
In conclusion, employers who meet the eligibility criteria for the ERTC should take advantage of this opportunity to retain their employees and lower their tax liabilities. Many businesses have already claimed this tax credit, which has helped them save money and retain their workforce during the pandemic. Employers should consult with their tax advisors to determine whether they qualify for the ERTC and how to claim the credit. By doing so, they can maximize their opportunities and take advantage of this beneficial tax credit. Don’t miss out on this opportunity to save your business money and retain your workforce – contact your tax advisor today.