The Ins and Outs of the Employee Retention Tax Credit: Explained

In the midst of the ongoing COVID-19 pandemic, many employers are struggling to keep their businesses afloat while retaining their employees. In an effort to incentivize companies to keep workers on their payroll, the government has implemented the employee retention tax credit (ERTC), a credit designed to offer tax relief to businesses that have been negatively impacted by the pandemic.

Here’s what you need to know about the ERTC:

What is the employee retention tax credit?

The ERTC is a refundable tax credit that provides financial assistance to employers who keep employees on their payroll while experiencing a significant decline in gross receipts.

Who is eligible for the ERTC?

Eligibility requirements for the ERTC vary depending on the size of the company and the extent to which they have been negatively impacted by the pandemic. Generally speaking, businesses that have experienced either a full or partial suspension of operations due to government orders or a significant decline in gross receipts are eligible to claim the credit.

How much is the ERTC?

The ERTC is a credit of up to $7,000 per employee per quarter, and can be applied to any wages paid after March 12, 2020. Businesses can claim the credit for up to 20% of qualified wages paid to employees during the pandemic.

How do businesses claim the ERTC?

To claim the ERTC, businesses need to file IRS Form 941, which is the Employer’s Quarterly Federal tax Return. Businesses can then claim the credit on their payroll tax returns using Form 941-X, which is the Adjusted Employer’s Quarterly Federal tax Return or Claim for Refund.

What are the potential benefits of the ERTC?

The benefits of the ERTC are numerous. By offering a tax credit to businesses, the government is incentivizing companies to keep their employees on their payroll during the pandemic, which can help reduce the overall unemployment rate. Additionally, the ERTC can provide businesses with much-needed cash flow, which can help them stay afloat during these challenging times.

The employee retention tax credit is just one of the many ways the government is working to provide financial relief to businesses impacted by the pandemic. Businesses that have been affected should speak with their tax professionals to determine if they are eligible for the ERTC and take advantage of this important financial assistance.