The employee retention tax credit (ERTC) was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 to assist businesses during the pandemic. While the ERTC has been extended and expanded by subsequent legislation, navigating its complexities can still be daunting for business owners.
Here are some tips to help you navigate the complexities of the ERTC:
1. Understand Eligibility Requirements
The ERTC is available to businesses that experienced a 50% drop in gross receipts for a quarter compared to the same quarter in the previous year, or businesses that were fully or partially suspended due to government orders. The credit is also available to businesses with 500 or fewer employees, including tax-exempt organizations.
2. Keep Detailed Records
To claim the ERTC, you need to keep detailed records of your payroll and other expenses. You’ll need to document the amount of eligible wages and health plan expenses, as well as the amount of credit claimed for each quarter. Make sure to keep these records organized and accessible in case of an audit.
3. Know your Maximum credit Amount
The maximum credit amount for the ERTC is $5,000 per employee for 2020, and $28,000 per employee for 2021. This means that if you have ten eligible employees in 2021, your maximum credit amount is $280,000. However, you can only claim the credit for wages and health plan expenses paid during the eligible period.
4. Consider the Interplay with Other Relief Programs
The ERTC can be used in conjunction with other relief programs, such as the Paycheck Protection Program (PPP). However, employers cannot claim the ERTC for wages paid with PPP funds. Employers can also claim the ERTC for wages paid to employees who were part of the Work Opportunity tax credit (WOTC).
5. Seek Professional Assistance
Navigating the complexities of the ERTC can be challenging, especially for small business owners. If you’re unsure about your eligibility or how to claim the credit, consider seeking assistance from a tax professional or accountant.
In conclusion, the ERTC can provide much-needed relief for businesses during the pandemic. However, understanding its eligibility requirements, keeping detailed records, knowing your maximum credit amount, considering the interplay with other relief programs, and seeking professional assistance can help you navigate its complexities and take advantage of its benefits.