Impact of COVID-19 on the Retail Industry and the Importance of Employee Retention Tax Credit for Retailers
The COVID-19 pandemic has impacted the entire world, and the retail industry is no exception. The pandemic forced many retailers to close their doors temporarily or permanently, causing a sharp decline in revenue. The retail industry was one of the hardest hit by the pandemic, with many businesses struggling to survive.
To help struggling businesses, the US government introduced the Employee Retention Tax Credit (ERTC). This tax credit was designed to provide financial relief to businesses that have been affected by the pandemic. It is a refundable tax credit that businesses can claim on their payroll taxes.
What is the Employee Retention Tax Credit (ERTC)?
The Employee Retention Tax Credit (ERTC) is a tax credit that was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It is designed to provide financial relief to businesses that have been affected by the COVID-19 pandemic. The credit is available to businesses that have experienced a significant decline in gross receipts or have been forced to shut down due to government orders.
Why is the Employee Retention Tax Credit important for retailers?
The retail industry has been one of the hardest hit by the pandemic. Many retailers have been forced to close their doors, causing a sharp decline in revenue. The Employee Retention Tax Credit provides financial relief to struggling businesses, allowing them to retain their employees and stay afloat during the pandemic.
Retailers can claim the credit for all wages paid to employees, including health insurance costs. The credit is calculated as a percentage of qualifying wages, up to a maximum of $5,000 per employee for 2020 and up to $28,000 per employee for 2021. This tax credit can be a lifeline for retailers struggling to keep their doors open during the pandemic.
Understanding the Employee Retention Tax Credit (ERTC)
The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit that was introduced as part of the CARES Act. The credit is designed to provide financial relief to businesses that have been affected by the COVID-19 pandemic. In this section, we will discuss the eligibility criteria for the ERTC and how it is calculated.
Eligibility criteria for the Employee Retention Tax Credit
To be eligible for the ERTC, businesses must meet certain criteria, including:
- The business must have been in operation during 2020 or 2021.
- The business must have experienced a significant decline in gross receipts in any quarter in 2020 or 2021 compared to the same quarter in 2019. The decline in gross receipts must be at least 50% to qualify for the credit.
- The business must have been subject to a full or partial shutdown due to a government order.
According to Trout CPA, retail companies can claim the ERTC for all wages paid to employees, and it can be claimed up to three years from the quarterly payroll return filing date. Companies must have sufficient wages to cover both ERTC and PPP loan forgiveness.
Calculation of the Employee Retention Tax Credit
The ERTC is calculated as a percentage of qualifying wages paid to employees during a specific period. The credit is 50% of qualifying wages paid between March 13, 2020, and December 31, 2020, and 70% of qualifying wages paid between January 1, 2021, and December 31, 2021. The maximum credit per employee for 2020 is $5,000, and the maximum credit per employee for 2021 is $28,000.
Qualifying wages are wages paid to employees during the specific period, including health insurance costs. For businesses with more than 500 employees, only wages paid to employees who were not providing services during the specific period due to a government order or a significant decline in gross receipts are eligible for the credit. For businesses with 500 or fewer employees, all wages paid during the specific period are eligible for the credit.
According to Lendio, eligible small businesses can claim up to $26,000 in credits per employee kept employed through 2020 and 2021. Recovery startup businesses that opened after February 15, 2020, and have annual gross receipts under $1 million are also eligible.
It is important to note that businesses cannot claim the ERTC for the same wages used for forgiveness of Paycheck Protection Program (PPP) loans. However, businesses can use the ERTC for wages that are not forgivable under the PPP.
How to Claim the Employee Retention Tax Credit
In this section, we will discuss how businesses can claim the Employee Retention Tax Credit (ERTC).
Claiming the ERTC for 2020
Businesses can claim the ERTC for 2020 on their payroll tax returns using Form 941. According to the U.S. Department of Treasury, eligible employers can reduce their payroll tax deposits by the amount of the anticipated ERTC. Alternatively, businesses can claim the credit on their annual income tax return using Form 941-X.
Claiming the ERTC for 2021
Businesses can claim the ERTC for 2021 on their quarterly payroll tax returns using Form 941. According to the IRS, eligible employers can reduce their payroll tax deposits by the amount of the anticipated ERTC. Alternatively, businesses can claim the credit on their annual income tax return using Form 941-X.
Documentation required to claim the ERTC
To claim the ERTC, businesses must maintain documentation to support the credit claimed. Documentation required includes:
- Documentation showing the reduction in gross receipts.
- Documentation showing the full or partial shutdown order.
- Documentation showing the amount of qualified wages and health plan expenses paid to employees.
According to Merchant Maverick, businesses should retain all documentation related to the ERTC for at least four years after the date of filing the tax return that includes the credit.
Be cautious of third-party advice
The IRS has warned employers to be cautious of third-party advice related to the ERTC. According to the IRS, some promoters are offering schemes to help employers claim inflated ERTC refunds. Businesses should be cautious of any scheme that sounds too good to be true and consult with a reputable tax professional to ensure compliance with the ERTC rules.
Penalty relief for claims related to the ERTC
The IRS has provided penalty relief for employers who make an error on their ERTC claims. According to the IRS, employers who make an error on their ERTC claims and have a reasonable basis for the error will not be subject to a penalty. Employers who were unaware of the ERTC or did not understand the eligibility criteria may be eligible for penalty relief.
How the Employee Retention Tax Credit Can Benefit Retailers
In this section, we will discuss how the Employee Retention Tax Credit (ERTC) can benefit retailers.
Financial relief for retailers impacted by COVID-19
The ERTC provides financial relief to retailers that have been affected by the COVID-19 pandemic. According to Trout CPA, retail companies can claim the ERTC for all wages paid to employees, and it can be claimed up to three years from the quarterly payroll return filing date. This credit can help retailers offset the cost of keeping their employees on the payroll during the pandemic.
Benefits of the ERTC for retailers
The ERTC can provide several benefits to retailers, including:
1. Increased cash flow
The ERTC is a refundable credit, which means that businesses can receive a refund if the credit exceeds their payroll tax liability. This can increase the cash flow for retailers who are struggling to stay afloat during the pandemic.
2. More flexibility in managing workforce
The ERTC provides retailers with more flexibility in managing their workforce. According to Lendio, eligible small businesses can claim up to $26,000 in credits per employee kept employed through 2020 and 2021. This credit can help retailers keep their employees on the payroll, even if they are not able to work due to the pandemic.
3. Ability to claim both ERTC and PPP
The ERTC can be claimed in addition to the Paycheck Protection Program (PPP). According to Trout CPA, companies must have sufficient wages to cover both ERTC and PPP loan forgiveness. This means that retailers can claim both credits to maximize their financial relief.
ERTC for recovery startup businesses
Recovery startup businesses that opened after February 15, 2020, and have annual gross receipts under $1 million are also eligible for the ERTC. According to Lendio, this credit can help these businesses recover from the impact of the pandemic and keep their employees on the payroll.
Take advantage of the ERTC
Retailers should take advantage of the ERTC to help them recover from the impact of the pandemic. Retailers should consult with a reputable tax professional to ensure compliance with the ERTC rules and to maximize their financial relief.
Eligibility Criteria for the Employee Retention Tax Credit for Retailers
In this section, we will discuss the eligibility criteria for the Employee Retention Tax Credit (ERTC) for retailers.
Eligible employers
Eligible employers for the ERTC include:
- Businesses that were fully or partially suspended due to a government order related to COVID-19.
- Businesses that experienced a significant decline in gross receipts during any calendar quarter in 2020 or 2021.
According to the IRS, a significant decline in gross receipts means that the gross receipts for a calendar quarter in 2020 or 2021 are less than 50% of the gross receipts for the same calendar quarter in 2019. Once a business meets this threshold, it remains eligible for the credit until the end of the quarter in which the gross receipts exceed 80% of the gross receipts for the same calendar quarter in the prior year.
Qualifying wages
Qualifying wages for the ERTC include:
- Wages paid to employees between March 12, 2020, and January 1, 2021, for the 2020 credit.
- Wages paid to employees between January 1, 2021, and December 31, 2021, for the 2021 credit.
According to Trout CPA, retail companies can claim the ERTC for all wages paid to employees, including health plan expenses.
Limitations on the ERTC
There are limitations on the ERTC, including:
- The credit is limited to 50% of the qualified wages paid to each employee.
- The credit is limited to $5,000 per employee for 2020 and up to $7,000 per quarter per employee for 2021.
- The credit cannot exceed the employer's share of Social Security taxes and certain Railroad Retirement taxes for the applicable calendar quarter.
Interaction with other COVID-19 relief measures
The ERTC can be claimed in addition to other COVID-19 relief measures, including the Paycheck Protection Program (PPP) and the Paid Sick and Family Leave tax credits. However, businesses cannot claim the ERTC for wages paid with PPP loan proceeds that have been forgiven.
Consult with a tax professional
Retailers should consult with a reputable tax professional to ensure compliance with the ERTC rules and to maximize their financial relief. A tax professional can help retailers determine their eligibility for the credit, calculate the credit amount, and assist with documentation requirements.
How to Maximize the Employee Retention Tax Credit for Retailers
In this section, we will discuss how retailers can maximize their financial relief with the Employee Retention Tax Credit (ERTC).
Calculate the credit amount
To maximize the ERTC, retailers should calculate the credit amount accurately. According to Merchant Maverick, the credit amount is equal to 50% of the qualified wages paid to each employee, with a maximum credit of $5,000 per employee for 2020 and up to $7,000 per quarter per employee for 2021. Retailers should ensure that they are claiming the maximum credit amount for each eligible employee.
Coordinate with other COVID-19 relief measures
Retailers should coordinate with other COVID-19 relief measures to maximize their financial relief. According to Trout CPA, businesses cannot claim the ERTC for wages paid with PPP loan proceeds that have been forgiven. However, wages paid with PPP loans that have not been forgiven are eligible for the ERTC. Retailers should coordinate with their tax professional to ensure that they are maximizing their financial relief with the ERTC and other relief measures.
Maintain documentation
To claim the ERTC, retailers must maintain documentation to support the credit claimed. According to Merchant Maverick, documentation required includes:
- Documentation showing the reduction in gross receipts.
- Documentation showing the full or partial shutdown order.
- Documentation showing the amount of qualified wages and health plan expenses paid to employees.
Retailers should retain all documentation related to the ERTC for at least four years after the date of filing the tax return that includes the credit.
Consult with a tax professional
Retailers should consult with a reputable tax professional to ensure compliance with the ERTC rules and to maximize their financial relief. A tax professional can help retailers determine their eligibility for the credit, calculate the credit amount, and assist with documentation requirements. Retailers can also consult with a tax professional to coordinate the ERTC with other COVID-19 relief measures and to ensure that they are maximizing their financial relief.
Take Advantage of the Employee Retention Tax Credit for Retailers Today
In this article, we have discussed how the Employee Retention Tax Credit (ERTC) can benefit retailers impacted by the COVID-19 pandemic. The ERTC provides financial relief to retailers that have experienced a significant decline in gross receipts or have been fully or partially suspended due to a government order related to COVID-19. Retailers can claim the ERTC for all wages paid to employees, including health plan expenses, and it can be claimed up to three years from the quarterly payroll return filing date.
To maximize their financial relief with the ERTC, retailers should:
- Determine their eligibility for the credit.
- Calculate the credit amount accurately.
- Coordinate with other COVID-19 relief measures.
- Maintain documentation to support the credit claimed.
- Consult with a reputable tax professional.
At Ertcguy.com, we provide valuable content to help businesses thrive in today's ever-changing landscape. Check out our other great content to learn more about SEO, digital marketing, and other topics that can help your business succeed.
FAQ
Who is eligible for the Employee Retention Tax Credit for retailers?
Retailers that experienced a significant decline in gross receipts due to COVID-19.
What is the maximum credit amount for the Employee Retention Tax Credit for retailers?
Retailers can claim up to $5,000 per employee for 2020 and up to $7,000 per quarter per employee for 2021.
How can retailers maximize their financial relief with the Employee Retention Tax Credit?
Retailers can coordinate with other COVID-19 relief measures and maintain documentation to support the credit claimed.
Who should retailers consult with to ensure compliance with the Employee Retention Tax Credit rules?
Retailers should consult with a reputable tax professional.
What documentation is required to claim the Employee Retention Tax Credit?
Retailers must maintain documentation showing the reduction in gross receipts, full or partial shutdown order, and the amount of qualified wages paid to employees.
How long can retailers claim the Employee Retention Tax Credit?
Retailers can claim the credit up to three years from the quarterly payroll return filing date.
What if retailers received a PPP loan, can they still claim the Employee Retention Tax Credit?
Retailers cannot claim the ERTC for wages paid with PPP loan proceeds that have been forgiven, but wages paid with PPP loans that have not been forgiven are eligible for the ERTC.
