Navigating the Complexities of the employee retention tax credit Program
The employee retention tax credit (ERTC) was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020. The program allows eligible employers to claim a tax credit for retaining their employees during the COVID-19 pandemic, but the program’s complexities can make it challenging for businesses to take advantage of its benefits fully.
Here are some of the key points to keep in mind when navigating the ERTC program:
Eligibility Criteria
To qualify for the ERTC, employers must have experienced a significant decline in revenue due to the pandemic. If the employer has more than 100 employees, the decline must be greater than 50 percent to be eligible. If the employer has 100 or fewer employees, the decline only needs to be more than 20 percent.
The ERTC is available to both for-profit and non-profit employers, and there is no minimum size requirement.
employee Eligibility
Employers can claim the ERTC for employees who are still on their payroll, including those who are not working due to COVID-19-related issues such as business closure, reduced hours, or quarantine.
The credit applies to wages paid between March 12, 2020, and December 31, 2021. The maximum credit for 2020 is $5,000 per employee, while the maximum credit for 2021 is $7,000 per employee per quarter.
Qualifying wages include both cash payments and the value of certain employee benefits, such as health insurance premiums.
Applying for the credit
Employers can claim the ERTC on their quarterly employment tax returns (Form 941) or in advance by reducing their federal payroll tax deposits.
Businesses that received Paycheck Protection Program (PPP) loans can still claim the ERTC, but they cannot claim the credit on the same wages used to calculate loan forgiveness.
Recordkeeping and Documentation
As with any tax credit, employers must keep thorough records to support their ERTC claim. This includes records of the decline in revenue, the number of employees, and the amount of wages paid to eligible employees.
Employers should also maintain documentation of any PPP loans, as well as any other COVID-19-related relief they have received.
Conclusion
The ERTC can be a valuable tool for eligible employers to retain their employees during a time of economic hardship. However, the program’s complexities can make it challenging for businesses to navigate.
Employers should familiarize themselves with the eligibility criteria and employee qualifications, keep thorough records, and seek guidance from tax professionals or the IRS if necessary to ensure they are taking full advantage of the program’s benefits.