As businesses continue to navigate the challenges of the ongoing pandemic, the employee retention tax credit (ERTC) has become an important lifeline for many. The credit was first introduced in the early days of the pandemic as part of the CARES Act, and this year it has been extended and expanded through Q3 of 2021. Here’s how the Q3 2021 employee retention tax credit can save your business money.
What is the employee retention tax credit?
The employee retention tax credit is a tax incentive that is designed to help businesses keep their employees on payroll during difficult economic times. Originally introduced as part of the CARES Act in March 2020, the credit is equal to a percentage of qualified wages paid to employees between March 12, 2020, and December 31, 2020.
The credit was initially available to businesses that had to either fully or partially suspend operations due to government-mandated closures or that experienced significant declines in revenue as a result of the pandemic. However, the credit was significantly expanded in the Consolidated Appropriations Act, 2021 (CAA) and made available to a wider range of businesses.
How has the employee retention tax credit been expanded?
The CAA extended the availability of the employee retention tax credit through June 30, 2021, and also expanded the credit in several important ways. First, the credit rate was increased from 50% to 70% of qualified wages, and the maximum credit per employee was increased to $14,000 for the period from March 1, 2021, through June 30, 2021.
The CAA also expanded eligibility for the credit, making it available to businesses that had a decline in gross receipts of 20% or more (down from 50%) compared to the same quarter in the previous year. Additionally, businesses with fewer than 500 employees can claim the credit for all wages paid to employees during a period of significant decline in gross receipts, regardless of whether the employee was providing services.
How can the Q3 2021 employee retention tax credit save your business money?
The American Rescue Plan Act (ARPA), signed into law on March 11, 2021, further extended the employee retention tax credit through December 31, 2021. The credit is now available for the third and fourth quarters of 2021, and businesses can claim up to $7,000 per employee per quarter.
To be eligible for the Q3 2021 employee retention tax credit, businesses must meet certain criteria. Specifically, the business must have experienced a decline in gross receipts of at least 20% in the third quarter of 2021 compared to the same quarter in 2019 (or in 2020 for businesses that were not in operation in 2019). The business must also meet certain other requirements related to operations and employee compensation.
If your business meets the eligibility requirements, the Q3 2021 employee retention tax credit can save you money by reducing your tax liability. You can claim a credit of up to $7,000 per employee for wages paid during the third quarter of 2021. If you have 20 employees who qualify for the credit, for example, you could save up to $140,000 on your tax bill.
Conclusion
The Q3 2021 employee retention tax credit is a valuable tool for businesses that are struggling due to the ongoing pandemic. If your business meets the eligibility requirements, the credit can save you money by reducing your tax liability. By taking advantage of the ERTC, you can keep more money in your business and help to protect your employees’ jobs during these difficult times.