The employee retention tax credit (ERTC) was first introduced under the CARES Act in 2020 to provide financial assistance to businesses impacted by the COVID-19 pandemic. The credit has since been extended and expanded under the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021. The ERTC is a valuable tax credit that can help businesses retain their employees and stay afloat during these uncertain times. Here’s everything you need to know to take advantage of it.
What is ERTC and what does it offer?
The ERTC is a refundable tax credit that allows businesses to receive up to $7,000 per employee per quarter for wages paid between March 13, 2020, and December 31, 2021. That means that a business can receive up to $28,000 in tax credits for each employee retained for the full year.
Eligibility criteria for ERTC
To be eligible for ERTC, your business must meet one of the following criteria:
1. Your business had to fully or partially suspend its operations due to a COVID-19-related government order.
2. Your business experienced a significant decline in gross receipts, which is defined as a decline of greater than 50% in any quarter compared to the same quarter in the previous year. Once your gross receipts begin to recover, you can continue to claim the credit until your gross receipts exceed 80% of what they were for the same quarter in the previous year.
The number of employees retained by your business also affects your eligibility for ERTC. If your business has fewer than 500 employees, all wages paid to employees during the eligible period qualify for the credit, regardless of whether the employee was working or not. If your business has over 500 employees, only wages paid to employees who were not working due to a government order or significant decline in gross receipts qualify for the credit.
How to claim ERTC
To claim ERTC, you must file Form 941, Employer’s Quarterly Federal tax Return, along with any additional forms or documentation required by the IRS. You can claim the credit on your quarterly tax return, or you can file an amended return for a previous quarter to claim the credit.
It’s important to note that you cannot use the same wages or payroll costs that you used for forgiveness under the Paycheck Protection Program (PPP) or other pandemic-related loan programs to also claim ERTC. However, you can use payroll costs that were not forgiven under these programs.
The bottom line
The ERTC is a valuable tax credit that can provide a lifeline to businesses struggling to keep their employees during the pandemic. If you believe your business is eligible for ERTC, it’s wise to consult with your tax professional or accountant to ensure that you are following all the necessary steps to claim the credit. With proper planning and execution, you can help your business stay afloat and weather the storm of the ongoing pandemic.