Small business owners are always looking for ways to save money, and the employee retention tax credit (ERTC) is a valuable tool that can help maximize your savings. In this article, we’ll cover what the ERTC is, who is eligible, and how you can claim it.
What is the employee retention tax credit?
The ERTC was created as part of the CARES Act in 2020 in response to the COVID-19 pandemic. It is a credit designed to help businesses keep employees on payroll during times of economic hardship. The credit is equal to 70% of eligible employee wages, up to $10,000 per employee per quarter.
Who is eligible for the employee retention tax credit?
Any employer, including non-profits, with operations that were fully or partially suspended due to a COVID-19-related government order, or that experienced a significant decline in gross receipts, may be eligible for the ERTC. The significant decline in gross receipts is defined as a decline of 50% or more in gross receipts in any quarter of 2020 compared to the same quarter in 2019. In 2021, the threshold has increased to 20% or more in gross receipts decline.
How can you claim the employee retention tax credit?
To claim the ERTC, you must complete Form 941, Employer’s Quarterly Federal tax Return, for each quarter you are eligible. You can then deduct the credit from the payroll taxes you owe, or request a refund of any portion of the credit that exceeds your payroll taxes. If you applied for and received a Paycheck Protection Program (PPP) loan, you may still be eligible for the ERTC, but you cannot use the same wages to calculate the credit.
Maximizing Your Business Savings with the employee retention tax credit
To maximize your savings with the ERTC, it’s essential to make sure you are claiming all eligible wages. Eligible wages include not only the employee‘s salary but also their health care benefits, retirement contributions, and paid time off. Additionally, you can claim the ERTC for qualified wages paid between March 13, 2020, and December 31, 2021.
It’s also vital to keep accurate records and documentation of your ERTC calculations and claim. The IRS may require you to provide supporting documentation, such as the COVID-19-related government order that caused the suspension of operations or evidence of the significant decline in gross receipts.
In conclusion, the employee retention tax credit is a valuable tool that can help small business owners maximize their savings during times of economic hardship. By understanding who is eligible, how to claim the credit, and maximizing eligible wages, small business owners can take full advantage of this credit and keep their employees on payroll.