As an employer, you may be eligible to claim the employee retention tax credit (ERTC), a refundable tax credit designed to incentivize businesses to retain employees during the COVID-19 pandemic. However, qualifying for and claiming this credit can be complex and requires a thorough understanding of the criteria and documentation needed. Here are the steps you should follow to qualify for and claim the ERTC.
Step 1: Determine Eligibility
To qualify for the ERTC, your business must meet the following criteria:
– You must have had a significant decline in gross receipts. For 2020, this means your gross receipts were 50% less than the same quarter in 2019. For 2021, this means your gross receipts were 20% less than the same quarter in 2019. Alternatively, you can compare your current quarter’s gross receipts to the same quarter in 2019 and qualify if the current quarter’s gross receipts are less than 80% of the gross receipts for the same quarter in 2019.
– You must have suffered a partial or full suspension of operations due to a government order related to COVID-19.
– You must have paid qualified wages to employees during the period you were eligible for the credit.
Step 2: Determine Qualified Wages
The ERTC is based on the qualified wages you pay to eligible employees. You can claim the credit for wages paid between March 13, 2020, and December 31, 2021. You can claim up to 70% of qualified wages paid per quarter, up to a maximum of $10,000 per employee per quarter.
Qualified wages are determined based on the average number of employees you had in 2019. If you had fewer than 100 employees, all wages paid during the eligible period are qualified wages. If you had 100 or more employees, only wages paid to employees who are not providing services due to the factors that made you eligible for the credit are qualified wages.
Step 3: Claim the credit
To claim the ERTC, you must file Form 941, the employer’s quarterly payroll tax return, for the eligible quarters. You can claim the credit by reducing your federal employment tax deposit for the quarter or by requesting a refund on Form 941. You can also file an amended return, Form 941-X, to claim the credit retroactively for previous quarters.
You should keep detailed records of your claims, including the number of employees, their wages, and the period for which you are claiming the credit. You should also keep records of the factors that made you eligible for the credit, such as government orders or significant declines in gross receipts.
In conclusion, claiming the ERTC can be a complicated process, but it is a valuable credit that can help businesses retain employees during challenging times. By following these steps and seeking guidance from a tax professional, you can take advantage of this credit and support your business’s growth and success.