The employee retention tax credit (ERTC) is one of the key provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERTC is a credit that helps businesses, especially small businesses, to retain employees during the COVID-19 pandemic. In this article, we will explore the details of the ERTC and what employers need to know to benefit from it.
What is the employee retention tax credit?
The ERTC is a refundable tax credit that provides employers with financial relief for retaining employees during the COVID-19 pandemic. The credit is worth 50% of qualified wages up to $10,000 per employee, which means that businesses can receive up to $5,000 per employee for qualified wages paid between March 12, 2020, and December 31, 2021.
Who is eligible for the employee retention tax credit?
Employers who have been significantly impacted by the pandemic are eligible for the ERTC. This includes employers who:
– Had their operations fully or partially suspended due to government orders related to COVID-19
– Experienced a significant decline in gross receipts (more than 20% in any quarter in 2020 compared to the same quarter in 2019, or more than 90% for any quarter in 2021)
– Were not in operation during any calendar quarter of 2019
What are qualified wages?
Qualified wages are wages paid to employees during the period of eligibility (March 12, 2020, to December 31, 2021). The amount of qualified wages that qualify for the credit depends on the number of employees the employer had in 2019.
For employers with 500 or fewer employees, all wages paid to employees during the period of eligibility qualify for the credit, whether the employees are working or not. For employers with more than 500 employees, only wages paid to employees who are not working qualify for the credit.
How to claim the employee retention tax credit?
Employers can claim the ERTC by filing Form 941, Employer’s Quarterly Federal tax Return, for the applicable quarters. Employers can also claim the credit by reducing their federal employment tax deposits, and the IRS will refund any excess credits.
It is important to note that employers cannot claim both the ERTC and the Paycheck Protection Program (PPP) loan forgiveness for the same wages. Employers have to choose which benefit to claim for the qualified wages.
Conclusion
The employee retention tax credit is an important benefit for employers who have been impacted by the COVID-19 pandemic. Employers can receive up to $5,000 per employee for qualified wages paid during the period of eligibility, which can provide much-needed financial relief. Employers should consult with their tax advisors to determine if they are eligible for the credit and how to claim it.