As a business owner, you’re likely always on the lookout for ways to save money and keep your bottom line in check. One way to potentially accomplish this is through the employee retention tax credit (ERTC). This tax credit was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 and has since been expanded and revised in subsequent legislation.
The ERTC allows qualifying employers to receive a tax credit for a portion of wages paid to employees during a certain period of time. The credit can be claimed on the employer’s federal tax return and can be applied against certain payroll taxes, including Social Security and Medicare taxes. The maximum credit amount is $5,000 per employee for the entire year.
So, how do you know if your business is eligible for the ERTC? Here are some key points to consider:
1. Business operations were partially or fully suspended due to a governmental order related to COVID-19, OR
2. Gross receipts for the 2020 calendar quarter were less than 50% of gross receipts for the same calendar quarter in 2019. Once gross receipts for a quarter exceed 80% of gross receipts for the same quarter in the prior year, the employer is no longer eligible for the credit after the end of that quarter.
If either of these conditions apply to your business, you may be eligible for the ERTC. It’s important to note that the definition of “partial or full suspension of operations” can be broad, and may include things like government-mandated shutdowns or other restrictions that directly impacted your business.
Another key factor is the size of your business. Generally, businesses with 500 or fewer employees can claim the ERTC. However, this limit has been increased to 1,500 employees for 2020 and 2021 for certain industries that were hit hardest by the pandemic, such as restaurants, hotels, and entertainment venues.
Additionally, the ERTC only applies to wages paid after March 12, 2020, and before January 1, 2022. If your business was already claiming the Paycheck Protection Program (PPP) loan forgiveness, you may not be eligible for the ERTC on the same wages, depending on certain factors.
If you think your business may be eligible for the ERTC, it’s important to reach out to your tax professional or financial advisor to review your specific situation and determine how to claim the credit. The rules and requirements for the ERTC can be complex, and incorrect claiming could result in penalties and interest.
The ERTC is just one of many potential tax credits and programs available to help businesses during these challenging times. By working with trusted advisors and staying informed of the latest changes and updates, you can help position your business for success now and in the future.