employee retention tax credit (ERTC) is a powerful tool that can help businesses recover from the COVID-19 pandemic. As the name suggests, this tax incentive is designed to encourage employers to retain their employees by granting them a tax credit.
Under the Consolidated Appropriations Act, 2021, the ERTC has been expanded and extended to help businesses that have been affected by the COVID-19 pandemic. The credit is available to eligible employers who have either partially or fully suspended their operations due to a government order relating to COVID-19, or who have experienced a significant decline in gross receipts.
The ERTC provides a refundable tax credit of up to $7,000 per employee per quarter for wages paid between January 1, 2021, and June 30, 2021. This means that if your business is eligible, you can receive a credit for up to 70% of the qualified wages paid to each employee, up to a maximum of $10,000 per employee for the first two quarters of 2021.
Accurate ERTC calculation is crucial for your business, as it can help you maximize the credit you can claim. The credit calculation is based on the number of qualified employees, the amount of qualified wages paid, and the applicable quarter. To correctly calculate the credit, you need to ensure that you have accurate records of your employees’ wages and hours worked, as well as the eligibility requirements for the credit.
It’s important to note that the ERTC cannot be claimed for the same wages used to calculate other COVID-19 tax credits, such as the Paycheck Protection Program (PPP) loans or the Families First Coronavirus Response Act (FFCRA) credits. This means that you need to carefully review your records to ensure that you are not double dipping in these areas.
Moreover, businesses that claim the ERTC also need to take note of the interplay of the credit with other tax laws. For instance, the ERTC is subject to social security taxes and income taxes, and there are limitations on how the credit can be applied against other payroll taxes.
Inaccurate ERTC calculation can lead to serious compliance risks, including IRS audits, penalties, and even litigation. The IRS has also announced that it will be closely scrutinizing ERTC claims in future audits, so it’s important to ensure that you have accurate records and calculations to support your claim.
In conclusion, accurate ERTC calculation is crucial for your business, as it can help you maximize the credit you can claim, avoid compliance risks, and ensure that you are not double dipping with other COVID-19 tax credits. If you are unsure about how to calculate the ERTC or need assistance in navigating the complex tax laws, it’s best to seek the advice of a knowledgeable tax professional.