The employee retention tax credit (ERTC) has been a major lifeline for businesses affected by the COVID-19 pandemic. The credit, which was part of the CARES Act, was designed to help employers keep their employees on the payroll during this unprecedented time.
The ERTC is a refundable tax credit that’s available to eligible employers for wages paid to eligible employees from March 13, 2020, through December 31, 2020. However, with the passage of the Consolidated Appropriations Act, 2021, the ERTC has been extended through June 30, 2021. This means that eligible employers can now claim the credit for wages paid from March 13, 2020, through June 30, 2021.
If you’re an eligible employer, there are several ways you can take advantage of the ERTC extension in 2021:
1. Reevaluate your eligibility
The eligibility criteria for the ERTC have changed with the new legislation. The maximum credit amount has been increased from $5,000 to $14,000 per employee for the period from January 1, 2021, to June 30, 2021. In addition, employers with up to 500 employees are now eligible, up from the previous threshold of 100 employees.
2. Evaluate your quarterly tax filings
Employers can now use the ERTC to offset their quarterly payroll tax deposits, instead of having to wait to file their tax returns to claim the credit. This means that eligible employers can receive the credit in real-time and use it to fund their operations and keep employees on the payroll.
3. Assess qualified wages
The ERTC is calculated based on the qualified wages paid to eligible employees during the covered period. Qualified wages are wages paid to an employee before any reductions for qualified health plan expenses. Under the CARES Act, qualified wages were limited to $10,000 per employee, but the new legislation has increased this limit to $10,000 per quarter per employee for the first two quarters of 2021. This means that eligible employers can now claim a credit of up to $7,000 per employee per quarter.
4. Consult with an expert
The ERTC can be a complex tax credit, and there are various requirements that must be met to qualify. If you’re unsure about your eligibility or how to claim the credit, it’s a good idea to consult with a tax expert or accountant who can guide you through the process and ensure you maximize your benefits.
In conclusion, the ERTC extension is a valuable opportunity for eligible employers to recover some of the wages paid to employees during the pandemic. By understanding the eligibility criteria, evaluating your payroll tax filings, assessing qualified wages, and seeking expert advice, you can take advantage of the ERTC in 2021 and keep your business going during these challenging times.