Understanding the Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) is a federal payroll tax credit that is available to businesses that have been affected by the COVID-19 pandemic. According to Construction Dive, construction companies can qualify for the ERTC if they had to close or limit operations due to government-mandated closures, supply chain issues, or social distancing requirements. The ERTC provides eligible businesses with a credit against certain employment taxes equal to a percentage of qualified wages paid to employees. The credit can be claimed for wages paid between March 13, 2020, and December 31, 2021.
How the Employee Retention Tax Credit Works
The ERTC is a refundable tax credit that businesses can claim on their quarterly payroll tax returns. The credit is equal to a percentage of qualified wages paid to employees during the eligibility period. According to JAK CPA, the credit is equal to 70% of qualified wages paid to employees through January 1, 2022, and is capped at $10,000 per employee per quarter.
Eligibility Criteria for the Employee Retention Tax Credit
To qualify for the ERTC, businesses must meet one of two criteria:
– The business was fully or partially suspended due to a government order related to COVID-19, or
– The business experienced a significant decline in gross receipts during a calendar quarter.
According to Alliant Group, Congress has expanded the ERTC in 2021 to make it accessible to many more construction companies. The CAA has revised the requirements so that a 20% reduction now qualifies, and even a partial suspension of a firm by the government may be eligible.
Now that we have a basic understanding of what the ERTC is and how it works, let's dive deeper into the benefits that the ERTC can offer to contractors.
Benefits of the Employee Retention Tax Credit for Contractors
The Employee Retention Tax Credit (ERTC) can provide significant financial benefits for contractors affected by the COVID-19 pandemic. Here are some of the ways that the ERTC can benefit contractors:
Financial Benefits
According to Equipment World, small businesses and contractors are not taking advantage of the ERTC program, which allows businesses to claim federal credits on their quarterly payroll taxes based on the number of full-time employees they had during the eligibility period. Despite the potential benefits, only 30% of small businesses are aware of the program, and many are missing out on millions of unclaimed dollars.
By claiming the ERTC, contractors can get a refundable tax credit against certain employment taxes. This can provide much-needed cash flow for contractors struggling to stay afloat during the pandemic.
Employee Retention
One of the main benefits of the ERTC is that it can help contractors retain employees during a time when many businesses are struggling to do so. According to Construction Dive, the ERTC is designed to encourage businesses to keep employees on their payroll by providing a payroll tax credit for continuing to employ Americans during the pandemic.
By retaining their employees, contractors can maintain their workforce and avoid the costs associated with recruiting and training new employees. Additionally, by retaining talented employees, contractors can position themselves to take advantage of new opportunities as the economy recovers.
Competitive Advantage
Finally, claiming the ERTC can give contractors a competitive advantage in the market. By retaining their workforce, contractors can complete projects more quickly and efficiently, which can help them win new business. Additionally, by taking advantage of the ERTC, contractors can offer more competitive pricing to their customers, which can help them win bids and secure new contracts.
Now that we have discussed the benefits of the ERTC, let's move on to some common misconceptions about the program.
Common Misconceptions About the Employee Retention Tax Credit
Despite the benefits of the Employee Retention Tax Credit (ERTC), there are still many misconceptions about the program. Here are some of the most common misconceptions about the ERTC:
Misconception #1: Receiving PPP Loans Disqualifies Businesses from Claiming the ERTC
According to JAK CPA of 2021 made it possible for businesses that received PPP loans to also claim the ERTC.
Misconception #2: The ERTC is Only for Large Businesses
Another common misconception about the ERTC is that it is only for large businesses. However, according to Route Consultant, the program is available to businesses of all sizes, including small businesses and contractors.
Misconception #3: The ERTC is Too Complicated to Claim
Some businesses are hesitant to claim the ERTC because they believe that the paperwork required to claim the credit is too complicated. However, according to Alliant Group, the paperwork required to claim the ERTC is not significantly more complicated than other tax forms that businesses are required to file. Additionally, businesses can work with tax professionals to ensure that they are completing the paperwork correctly.
Misconception #4: The ERTC is No Longer Available
Finally, some businesses believe that the ERTC is no longer available. However, according to Equipment World, the program is still available, and businesses can claim the credit for wages paid between March 13, 2020, and December 31, 2021.
Now that we have addressed some common misconceptions about the ERTC, let's move on to how contractors can apply for the credit.
How Contractors Can Apply for the Employee Retention Tax Credit
Applying for the Employee Retention Tax Credit (ERTC) can be a straightforward process for contractors. Here are the steps that contractors can take to apply for the ERTC:
Step 1: Determine Eligibility
The first step in applying for the ERTC is to determine if your business is eligible for the credit. As we discussed in section 2, businesses must meet certain criteria to qualify for the credit. Contractors should review the eligibility requirements carefully to ensure that they meet the criteria before applying.
Step 2: Calculate the Credit
Once you have determined that your business is eligible for the ERTC, the next step is to calculate the credit. According to JAK CPA, the credit is equal to 70% of qualified wages paid to employees through January 1, 2022, and is capped at $10,000 per employee per quarter. Contractors should work with their tax professionals to calculate the credit accurately.
Step 3: Complete the Necessary Forms
To claim the ERTC, contractors must complete the necessary forms as part of their quarterly payroll tax returns. The forms required to claim the credit will depend on the type of business. Contractors should work with their tax professionals to ensure that they are completing the correct forms.
Step 4: Submit the Forms
Once the forms are completed, contractors should submit them with their quarterly payroll tax returns. According to Alliant Group, the IRS generally processes ERTC claims quickly, and contractors can expect to receive their refunds within a few weeks.
Step 5: Keep Accurate Records
Finally, it is important for contractors to keep accurate records of their ERTC claims. According to Route Consultant, contractors should keep all supporting documents for at least four years after the due date of the tax return on which the credit was claimed. This includes records of the number of employees, the amount of qualified wages, and any other information related to the ERTC claim.
By following these steps, contractors can successfully apply for the ERTC and take advantage of the benefits that the credit offers.
Tips for Maximizing Your Employee Retention Tax Credit
Contractors who are looking to maximize their benefits from the Employee Retention Tax Credit (ERTC) can follow these tips:
Tip #1: Work with a Tax Professional
Working with a tax professional can help contractors ensure that they are taking full advantage of the ERTC. Tax professionals can help contractors determine eligibility, calculate the credit accurately, and complete the necessary forms.
Tip #2: Keep Accurate Records
As we discussed in section 4, it is important for contractors to keep accurate records of their ERTC claims. By keeping detailed records, contractors can ensure that they are claiming the credit correctly and avoid issues with the IRS.
Tip #3: Review Eligibility Regularly
Eligibility for the ERTC can change over time, so it is important for contractors to review their eligibility regularly. Contractors should review their eligibility each quarter to ensure that they are taking full advantage of the credit.
Tip #4: Apply for Retroactive Credits
Contractors who did not claim the ERTC in previous quarters may be able to apply for retroactive credits. According to JAK CPA, businesses can claim retroactive credits on their quarterly payroll tax returns for the period in which they were eligible.
Tip #5: Consider Remediation Programs
Finally, contractors who are concerned about their eligibility for the ERTC may want to consider remediation programs. As we discussed in section 1, companies like Silicon Ledger offer remediation programs that can help businesses review their supporting documents for compliance with IRS guidelines.
By following these tips, contractors can maximize their benefits from the ERTC and position themselves for success as the economy recovers.
Conclusion
The Employee Retention Tax Credit (ERTC) is a valuable program for contractors who are looking to retain employees during the pandemic. Despite the benefits of the program, there are many misconceptions about the ERTC that have prevented some businesses from applying for the credit. By understanding the eligibility requirements and following the steps outlined in this article, contractors can successfully apply for the ERTC and take advantage of the benefits that the program offers.
Working with tax professionals, keeping accurate records, and regularly reviewing eligibility can help contractors maximize their benefits from the ERTC. Additionally, contractors who did not claim the credit in previous quarters may be able to apply for retroactive credits. Finally, contractors who are concerned about their eligibility for the ERTC may want to consider remediation programs that can help them review their supporting documents for compliance with IRS guidelines.
By taking advantage of the ERTC, contractors can position themselves for success as the economy recovers and ensure that they are able to retain their valuable employees.
Don't Miss Out on the Benefits of the ERTC
The Employee Retention Tax Credit (ERTC) is a valuable program that can help contractors retain employees during the pandemic. By following the steps outlined in this article and taking advantage of the tips for maximizing your benefits, contractors can position themselves for success as the economy recovers.
At ertcguy.com, we are committed to providing valuable information and insights to help contractors succeed in today's challenging business environment. Be sure to check out our other great content on topics like tax planning, business strategy, and more.
Don't miss out on the benefits of the ERTC apply today and take advantage of this valuable program!
Questions & Answers
Q.Who is eligible for the employee retention tax credit for contractors?
A.Contractors who experienced a 20% drop or more in quarterly gross revenue compared to 2019.
Q.What is the maximum credit allowable under the ERTC for contractors?
A.The maximum credit allowable under the ERTC was $5,000 per employee, but with its renewal and expansion under the Consolidated Appropriations Act (CCA), 2021, the maximum credit increased to $21,000.
Q.How can contractors claim the ERTC?
A.Contractors can claim the ERTC by filing Form 941, Employer's Quarterly Federal Tax Return, with the IRS.
Q.Who can contractors work with to maximize their ERTC benefits?
A.Contractors can work with a tax professional to ensure that they are taking full advantage of the ERTC.
Q.What records should contractors keep to ensure accurate ERTC claims?
A.Contractors should keep detailed records of their ERTC claims to ensure that they are claiming the credit correctly.
Q.How can contractors apply for retroactive ERTC credits?
A.Contractors who did not claim the ERTC in previous quarters may be able to apply for retroactive credits on their quarterly payroll tax returns for the period in which they were eligible.
