As Q3 2021 rolls around, employers need to stay up to date on the latest information regarding the employee retention tax credit (ERTC). This tax credit was first introduced in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and has since been updated and expanded by subsequent legislation.
The ERTC provides tax credits to eligible employers who have experienced a significant decline in gross receipts or have been forced to partially or fully suspend their operations due to government orders related to the COVID-19 pandemic. The credit is equal to 50% of qualified wages paid to employees from March 13, 2020, through December 31, 2021, up to a maximum of $10,000 per employee per quarter.
To claim the ERTC for Q3 2021, employers need to meet a few requirements:
1. Eligibility
Eligible employers include those that experienced a decline in gross receipts of more than 20% in Q1 or Q2 2021 compared to the same quarter in 2019, or those that were subject to a government order that partially or fully suspended their operations during Q1 or Q2 2021. Employers with fewer than 500 full-time employees can claim the credit for all employees, while larger employers can only claim it for wages paid to employees who were not able to work due to the suspension or decline in business.
2. Qualified wages
Qualified wages include all wages paid to employees during the eligible period, including health plan expenses, but do not include wages paid to family members of the employer or wages that have already been used to claim the Paycheck Protection Program (PPP) loan forgiveness.
3. Documentation
Employers must maintain adequate records to support their claim for the ERTC, including records of the decline in gross receipts, government orders, and payments of qualified wages.
It is important to note that the ERTC can be claimed in addition to other COVID-19 relief programs, such as the PPP. However, employers cannot claim the ERTC for the same wages used to calculate forgiveness for PPP loans.
Employers should also be aware that the ERTC was extended through December 31, 2021, and has been expanded to cover wages paid to employees who are on a paid leave due to COVID-19 vaccinations or recovery. Additionally, employers who were not eligible for the ERTC due to receiving a PPP loan may now be eligible for the credit for Q3 and Q4 2021 if they meet the eligibility requirements.
In conclusion, employers need to stay informed about the latest updates and guidance on the ERTC as they navigate the ongoing impacts of the COVID-19 pandemic. The ERTC can provide significant relief to eligible employers, and it is important to ensure compliance with the eligibility requirements and documentation requirements. Employers are also encouraged to consult with their tax advisors or legal counsel for specific guidance on the ERTC and its impact on their business.