Employee Retention Tax Credit for Government Contractors: The Key to Post-Pandemic Business Stability
The COVID-19 pandemic has brought unprecedented disruption to the business world. Government contractors, a crucial component of the national economy, have faced particular challenges. With many contracts cancelled or delayed due to the pandemic, government contractors have had to find ways to stay afloat and retain their employees during these difficult times.
One of the ways that government contractors can recover from the pandemic and ensure their business stability is through the Employee Retention Tax Credit (ERTC). The ERTC is a refundable tax credit designed to help businesses retain employees during the pandemic or during periods of significant decline in gross receipts. In this article, we will explore what the ERTC is, how it impacts government contractors, and why it's important to take advantage of this opportunity.
What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit (ERTC) is a refundable tax credit designed to help eligible businesses retain employees during the COVID-19 pandemic or during periods of significant decline in gross receipts. The credit is available to government contractors who meet specific eligibility requirements.
Eligibility Requirements for Government Contractors
To be eligible for the ERTC, government contractors must meet the following requirements:
- The business must have been fully or partially suspended due to a government order related to COVID-19, or have experienced a significant decline in gross receipts. (Contractor Mag
- The business must not have received a Paycheck Protection Program (PPP) loan that has been forgiven. (IRS
- The business must have had an average of 500 or fewer full-time employees in 2019. (Aprio
How to Claim the Credit on Tax Returns
Eligible government contractors can claim the ERTC on their quarterly payroll tax returns. The credit is equal to 50% of eligible wages paid to employees, up to a maximum credit of $5,000 per employee for the entire year. In 2021, the credit limit has been increased to $7,000 per employee per quarter. (IRS
To claim the credit, government contractors must calculate the eligible wages paid to employees during the eligible period and report it on their tax returns. Eligible wages include wages paid to employees who are not performing services due to a full or partial suspension of operations, or due to a significant decline in gross receipts. (Aprio
How Does the ERTC Impact Your ICS?
Government contractors who received the ERTC in 2020 or 2021 must show it in their Incurred Cost Submission (ICS). However, there is confusion on how to do so as official guidance has not been published.
Definition of Incurred Cost Submission (ICS)
The Incurred Cost Submission (ICS) is a report that government contractors must submit annually to the government to reconcile the actual costs incurred on a cost-reimbursable government contract with the estimated costs used to bill the government.
How to Show ERTC on Your ICS
According to Aprio, government contractors who received the ERTC in 2020 or 2021 should report the credit as a reduction to indirect costs in their ICS. However, as official guidance has not been published, government contractors may seek professional assistance to ensure compliance and avoid potential repayment to the government.
Potential Repayment and How to Avoid It
It is important for government contractors to ensure that they are in compliance with the requirements for claiming the ERTC, as failure to do so may result in potential repayment to the government. Aprio can assist government contractors with completing their ICS and answering questions related to the ERTC credit, including repayment to the government.
Benefits of Claiming the ERTC for Government Contractors
Government contractors who are eligible for the ERTC should take advantage of this opportunity before funds run out or the three-year claims window closes. Here are some benefits of claiming the ERTC:
Most Businesses Qualify
According to Contractor Mag, most businesses qualify for the ERTC. Even if a business received a PPP loan, they may still be eligible for the ERTC for wages that were not paid with PPP funds.
Businesses Can Receive Up to $26,000 per Employee
Businesses can receive up to $5,000 per employee for the entire year for eligible wages paid in 2020, and up to $7,000 per employee per quarter in 2021. This means that a business with 10 eligible employees can receive up to $50,000 in 2020 and up to $280,000 in 2021. (Contractor Mag
It's Retroactive
The ERTC is retroactive to March 12, 2020, meaning that eligible businesses can claim the credit for up to two years of wages paid during the pandemic. (Contractor Mag
It's a Cash Refund
The ERTC is a refundable credit, which means that eligible businesses can receive a cash refund from the government even if they do not owe any taxes. (Contractor Mag
It's Easier Than You Think
Claiming the ERTC is relatively easy. Eligible businesses can claim the credit on their quarterly payroll tax returns. However, it is important to ensure that the business is in compliance with the requirements for claiming the credit to avoid potential repayment to the government. (Contractor Mag
Other Credits Available to Businesses
In addition to the ERTC, there are other credits available to businesses, such as the Research & Development (R&D) tax credit and the PPP forgivable loan program. Businesses should consider taking advantage of these credits to maximize their savings. (Contractor Mag
How to Take Advantage of the ERTC as a Government Contractor
Taking advantage of the ERTC as a government contractor can help businesses retain employees and save money during the pandemic. Here are some tips for government contractors to maximize their savings with the ERTC:
Understand Eligibility Requirements
Government contractors should understand the eligibility requirements for the ERTC to ensure that they are eligible to claim the credit. This includes meeting the requirements for a significant decline in gross receipts or partial or full suspension of operations due to a government order related to COVID-19. (IRS
Calculate Eligible Wages
Government contractors should calculate the eligible wages paid to employees during the eligible period to accurately report the credit on their tax returns. Eligible wages include wages paid to employees who are not performing services due to a full or partial suspension of operations, or due to a significant decline in gross receipts. (Aprio
Seek Professional Assistance
Government contractors may seek professional assistance to ensure compliance with the requirements for claiming the ERTC and avoid potential repayment to the government. Professional assistance can also help government contractors complete their ICS and answer questions related to the ERTC credit. (Aprio
Maximize Savings with Other Credits
In addition to the ERTC, government contractors should consider taking advantage of other credits available to businesses, such as the Research & Development (R&D) tax credit and the PPP forgivable loan program. These credits can help businesses maximize their savings and retain employees during the pandemic. (Contractor Mag
Take Action Before Funds Run Out
Government contractors should take action to claim the ERTC before funds run out or the three-year claims window closes. By taking action now, government contractors can maximize their savings and retain employees during the pandemic. (Equipment World
Conclusion
The Employee Retention Tax Credit (ERTC) is a valuable opportunity for government contractors to save money and retain employees during the pandemic. By understanding the eligibility requirements, calculating eligible wages, seeking professional assistance, and taking action before funds run out, government contractors can maximize their savings with the ERTC.
In addition to the ERTC, government contractors should consider taking advantage of other credits available to businesses, such as the Research & Development (R&D) tax credit and the PPP forgivable loan program, to maximize their savings and retain employees during the pandemic.
It is important for government contractors to ensure compliance with the requirements for claiming the ERTC to avoid potential repayment to the government. By taking action now, government contractors can maximize their savings and retain employees during the pandemic.
Ready to Maximize Your Savings with the ERTC?
If you are a government contractor who is eligible for the Employee Retention Tax Credit (ERTC), now is the time to take action and maximize your savings. By understanding the eligibility requirements, calculating eligible wages, seeking professional assistance, and taking action before funds run out, you can take advantage of this valuable opportunity to save money and retain employees during the pandemic.
At ertcguy.com, we specialize in providing valuable information and resources for government contractors to maximize their savings and succeed in their business. Check out our other great content for more tips and insights on government contracting, SEO optimization, and more.
Don't wait – take action today and start maximizing your savings with the ERTC!
FAQ
Who is eligible for the Employee Retention Tax Credit for government contractors?
Government contractors who had a significant decline in gross receipts or partial or full suspension of operations.
What is the purpose of the Employee Retention Tax Credit for government contractors?
To help businesses save money and retain employees during the pandemic.
How can government contractors claim the Employee Retention Tax Credit?
By accurately reporting eligible wages on their tax returns and ensuring compliance with eligibility requirements.
Who can government contractors seek assistance from for the Employee Retention Tax Credit?
Professional assistance can be sought from GovCon Consultants or Aprio to ensure compliance and complete the ICS.
What other credits are available to government contractors besides the Employee Retention Tax Credit?
The Research & Development (R&D) tax credit and the PPP forgivable loan program are available.
How can government contractors avoid potential repayment to the government for the Employee Retention Tax Credit?
By ensuring compliance with eligibility requirements and seeking professional assistance.
What is the benefit of taking action now to claim the Employee Retention Tax Credit?
By taking action now, government contractors can maximize their savings and retain employees during the pandemic.
