As a business owner, you may have heard about the employee retention tax credit (ERTC) and its potential benefits for your company. However, calculating the credit can be a daunting task. If you’re not sure how to calculate your ERTC, this guide will help you understand the basics and get started.
What is the employee retention tax credit?
The ERTC is a tax credit created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It’s designed to help businesses keep employees on their payroll during the COVID-19 pandemic. The credit is worth up to $5,000 per employee for wages paid from March 13, 2020 through December 31, 2021.
To qualify for the ERTC, your business must meet one of two criteria:
1. It experienced a significant decline in revenue. If your business had a 50% or greater decline in gross receipts from the same quarter in 2019, you qualify for the credit.
2. It was shut down due to a government order. If your business was fully or partially suspended due to a government order, you qualify for the credit.
How to calculate the employee retention tax credit
Now that you know if your business qualifies for the ERTC, you need to calculate how much credit you can claim. The credit is calculated based on eligible wages and healthcare expenses paid to employees during the designated time period.
For businesses with 500 or fewer employees, eligible wages are those paid to employees during the following time periods:
– March 13 to December 31, 2020: Up to $10,000 per employee per quarter
– January 1 to June 30, 2021: Up to $10,000 per employee per quarter
For businesses with more than 500 employees, eligible wages are those paid to employees during the following time periods:
– March 13 to December 31, 2020: Wages paid to employees who were not providing services due to a government order, up to $10,000 per employee per quarter
– January 1 to June 30, 2021: Wages paid to employees who were not providing services due to a government order, up to $10,000 per employee per quarter
Once you’ve determined your eligible wages, you can calculate your ERTC by multiplying your eligible wages by the credit rate. The credit rate is 50% for wages paid from March 13 to December 31, 2020, and 70% for wages paid from January 1 to June 30, 2021.
For example, if your business had 10 employees and paid each employee $10,000 in eligible wages during the first quarter of 2021, your eligible wages would be $100,000. Multiply that by the credit rate of 70%, and your ERTC would be $70,000.
The ERTC is claimed on your business’s quarterly payroll tax returns or on Form 941. If the credit exceeds your tax liability, you can carry it forward to offset future taxes or request a refund.
Conclusion
Calculating the employee retention tax credit can be complex, but understanding the basics and following the guidelines can save your business money. If you’re unsure about how to calculate your ERTC, consult with a tax professional or utilize online resources to ensure accuracy. With the right approach and attention to detail, you can take advantage of this valuable credit and support your business through the COVID-19 pandemic.