As a business owner, you know that tax time can be stressful. However, with the employee retention tax credit (ERTC), you may be entitled to a tax credit that can help to ease the burden of paying your taxes. Here are some tips for navigating the tax filing process with the ERTC in mind.
Understand the ERTC
The ERTC is a tax credit that was created by the CARES Act to provide businesses that were impacted by the COVID-19 pandemic with financial relief. This tax credit provides businesses with up to $5,000 per employee for wages paid between March 13th, 2020 and December 31st, 2020. Additionally, the Consolidated Appropriations Act, 2021 extended the availability of the ERTC through June 30th, 2021, and increased the credit amount to $7,000 per employee per quarter.
Determine Eligibility
To qualify for the ERTC, your business must meet certain criteria. You must have experienced a full or partial suspension of operations due to a government order, or you must have experienced a significant decline in gross receipts. Additionally, your business cannot have received a Paycheck Protection Program loan.
Calculate the credit
Calculating the ERTC can be a complex process, and it’s important to seek guidance from a tax professional to ensure that you are accurately accounting for your payroll expenses. The credit is calculated as 50% of qualified wages paid from March 13th, 2020 through December 31st, 2020, and 70% of qualified wages paid from January 1st, 2021 through June 30th, 2021. The maximum credit amount is $5,000 per employee for wages paid in 2020, and $7,000 per employee per quarter in 2021.
Claim the credit
To claim the ERTC, you must file Form 941, Employer’s Quarterly Federal tax Return. You will need to report the credit on line 11c of Form 941, and you must also attach Form 8974, Qualified Small Business Payroll tax credit for Increasing Research Activities. Additionally, you will need to keep detailed records of your payroll expenses and the calculations used to determine the credit amount.
Navigating the tax filing process can be overwhelming, but with the ERTC in mind, you may be able to reduce your overall tax bill. If you’re unsure about your eligibility for the ERTC or how to calculate the credit, consult with a tax professional who can guide you through the process and ensure that you’re maximizing your potential tax savings.