The employee retention tax credit (ERTC) was introduced by the CARES Act in March 2020 as a stimulus measure to help businesses weather the impact of the COVID-19 pandemic. The ERTC is a refundable tax credit that employers can claim against their federal payroll tax. The good news is that the tax credit has been extended and amended to provide even greater benefits for eligible employers in 2021.
What is the employee retention tax credit?
The ERTC allows eligible employers to claim a refundable tax credit on qualified wages paid to employees between March 13, 2020, and December 31, 2021. The eligible wages are capped at $10,000 per employee per quarter, which means that the maximum credit amounts to $7,000 per employee per quarter. To qualify for the credit, the employer must have experienced a significant decline in gross receipts, or had a business that was fully or partially suspended due to government orders related to COVID-19.
What’s new?
The American Rescue Plan Act (ARPA) of 2021 extended and amended the ERTC by making it more accessible and valuable for eligible employers. Here are the changes you need to know:
– Eligibility: the eligibility criteria have been expanded for the third and fourth quarters of 2021. Now, businesses that have experienced a decline in gross receipts of 20% or more, compared to the same quarter in 2019, can qualify for the credit. Additionally, businesses can now qualify for the credit if they have been fully or partially suspended due to COVID-19-related government orders for any length of time.
– credit amount: the credit rate has been increased from 50% to 70% of qualified wages. This means that eligible employers can claim a maximum credit of $28,000 per employee per year in 2021.
– Advance payment: employers with 500 or fewer employees can now request advance payment of the credit through Form 7200, which can be filed quarterly. This can help businesses with cash flow and provide a lifeline for those who are struggling.
What is Form 941x?
Form 941x is used to correct errors on previously filed Form 941, which is the employer’s quarterly federal tax return. Employers can use this form to claim the ERTC retroactively for the first two quarters of 2020, or to correct the amount of tax paid to the IRS for the third and fourth quarters of 2020 due to claiming the credit. Employers can also use this form to claim the advance payment of the ERTC for 2021.
Navigating Form 941x
Here are some tips for navigating Form 941x:
1. Determine your eligibility for the ERTC for each quarter you are correcting or claiming.
2. Calculate the amount of ERTC you are eligible to claim for each quarter.
3. Fill out Part 1 – Information about Claimant and Part 2 – Corrections with the corrected or updated information.
4. Fill out Part 3 – Explanation of Changes for each quarter you are correcting or claiming. Provide a detailed and clear explanation of the changes you are making, including the ERTC claimed.
5. Complete the Payment Worksheet in Part 4 – Payment or Refund. Use this worksheet to calculate the amount of tax due or refund.
6. Sign and date the form and submit it to the IRS.
Conclusion
Navigating the employee retention tax credit can be complicated, but it can provide significant relief to eligible employers. With the expanded eligibility and increased credit rate for 2021, now is the time to take advantage of this valuable tax credit. Using Form 941x to correct errors or claim the credit can be daunting, but with careful attention to detail and accurate calculations, employers can successfully claim the credit and receive the benefits they deserve.