What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit (ERTC) is a refundable tax credit for businesses that paid employees during the pandemic or had significant declines in gross receipts. As an S-Corporation owner, you will be pleased to know that you may be eligible for the ERTC if you meet certain requirements. This credit is particularly important for S-Corporations as it allows them to offset payroll tax liabilities and receive tax credits for offering paid leave to employees, which can be a significant expense.
In this article, we will go over the details of the ERTC, explain its eligibility requirements, discuss the benefits and limitations, and provide tips on ensuring eligibility and accurate reporting. We will also address some of the challenges in determining the eligibility for solo corporate owners of C or S corporations.
What is the Employee Retention Tax Credit?
Definition of the Employee Retention Tax Credit
The Employee Retention Tax Credit is a refundable tax credit that can be claimed by eligible employers who paid qualified wages to employees between March 13, 2020, and December 31, 2021. The credit is 70% of qualified wages paid during that period, up to a maximum of $10,000 per employee per quarter, for a maximum credit of $28,000 per employee.
Eligibility requirements for the Employee Retention Tax Credit
To be eligible for the Employee Retention Tax Credit, S-Corporations must have faced one of two scenarios:
- The business experienced a significant decline in gross receipts in any quarter of 2020 or 2021, as compared to the same quarter in 2019. A significant decline is defined as a decline of 50% or more.
- The business was fully or partially suspended due to a government order related to COVID-19 during any quarter of 2020 or 2021.
In addition to the above circumstances, S-Corporations must meet the following requirements:
- Working for the company: The credit is only available for wages paid to employees who are still working for the company.
- Being paid by the company: Only wages paid by the eligible employer are considered when calculating the credit.
- Meeting full-time status requirements: The credit is only available for wages paid to full-time employees.
Maximum credit available for S-Corporations
The maximum credit available for S-Corporations is based on the number of employees on the payroll. For 2020, the maximum credit is $5,000 per employee for the entire year. For 2021, the maximum credit is $7,000 per employee per quarter, for a total of $28,000 per employee for the year. It is important to note that the credit is calculated on a quarterly basis, and any unused credit can be carried forward to future quarters.
According to ERC Today, S-corporation owners may be eligible for the Employee Retention Credit if they meet certain requirements.
Benefits of the Employee Retention Tax Credit for S-Corporations
As an S-Corporation owner, you may be wondering what the benefits are of claiming the Employee Retention Tax Credit. Here are some of the key benefits:
1. Offset payroll tax liabilities
According to the Treasury Department, the Employee Retention Tax Credit allows eligible employers to offset payroll tax liabilities. This means that you can reduce the amount of payroll taxes you owe by the amount of the credit you are eligible to claim.
2. Receive tax credits for offering paid leave
In addition to offsetting payroll tax liabilities, the Employee Retention Tax Credit also allows eligible employers to receive tax credits for offering paid leave to employees who may take leave due to illness, quarantine, or caregiving. This can be a significant expense for S-Corporations, so the credit can provide much-needed relief.
3. Claim retroactively using Form 941-X
According to ERC Today, eligible employers can claim the Employee Retention Tax Credit retroactively using Form 941-X, even if the business received a PPP loan. This means that if you did not claim the credit when you filed your quarterly Form 941, you can still claim it by filing a corrected Form 941-X.
4. Receive penalty relief for claims related to the credit
The IRS offers penalty relief for employers who make a good-faith effort to comply with the requirements for claiming the Employee Retention Tax Credit but make an error on their tax return. This means that if you make an honest mistake when claiming the credit, you may not be subject to penalties.
5. Save on taxes
Finally, the Employee Retention Tax Credit can help S-Corporations save on taxes. By claiming the credit, you can reduce your tax liability and keep more money in your business.
It is important to note, however, that there are limitations and exceptions to the credit. As IRS Prob notes, PPP loan forgiveness is prohibited for employers who claim the credit, and certain family members are not eligible for the credit. Additionally, it is recommended to have a formal, written plan and strong documentation for tax-free disaster-related payments to ensure eligibility. It is always best to work with an expert to ensure that you are eligible for the credit and accurately reporting it.
How to Claim the Employee Retention Tax Credit for S-Corporations
Now that you understand the benefits of the Employee Retention Tax Credit for S-Corporations, let's take a look at how to claim the credit.
1. Determine your eligibility
The first step is to determine whether your S-Corporation is eligible for the credit. As mentioned earlier, you must have faced a significant decline in gross receipts or been fully or partially suspended due to a government order related to COVID-19. In addition, you must meet the requirements for working for the company, being paid by the company, and meeting full-time status requirements.
2. Calculate the credit
Once you have determined that you are eligible for the credit, the next step is to calculate the amount of the credit. As mentioned earlier, the credit is 70% of qualified wages paid during the eligible period, up to a maximum of $10,000 per employee per quarter, for a maximum credit of $28,000 per employee.
3. Claim the credit on your tax return
To claim the Employee Retention Tax Credit, you must file Form 941, Employer's Quarterly Federal Tax Return. You can claim the credit on Line 11c of Form 941 for the applicable quarter.
If you have already filed your quarterly Form 941 and did not claim the credit, you can file a corrected Form 941-X to claim the credit. As mentioned earlier, you can claim the credit retroactively using Form 941-X.
4. Work with an ERC expert
As the rules and requirements for the Employee Retention Tax Credit can be complex, it is recommended to work with an ERC expert to ensure that you are eligible for the credit and accurately reporting it. ERC Today offers assistance with navigating the ERC requirements and filing the application.
5. Keep documentation
Finally, it is important to keep documentation to support your claim for the Employee Retention Tax Credit. This includes documentation that shows the significant decline in gross receipts or the government order that caused the suspension of your business, as well as documentation of the qualified wages paid to employees. By keeping thorough documentation, you can ensure that you are prepared in case of an audit.
Common Questions About the Employee Retention Tax Credit for S-Corporations
As an S-Corporation owner, you may have some questions about the Employee Retention Tax Credit. Here are some of the most common questions and answers:
1. Can S-Corporation owners claim the Employee Retention Tax Credit?
Yes, S-Corporation owners may be eligible for the Employee Retention Tax Credit if they meet the eligibility requirements. As ERC Today notes, S-Corporation owners who are also employees of the company may be eligible for the credit.
2. Can S-Corporations claim the Employee Retention Tax Credit if they received a PPP loan?
Yes, S-Corporations can claim the Employee Retention Tax Credit even if they received a PPP loan. However, as IRS Prob notes, PPP loan forgiveness is prohibited for employers who claim the credit.
3. How is the Employee Retention Tax Credit calculated for S-Corporations?
The Employee Retention Tax Credit is calculated as 70% of qualified wages paid during the eligible period, up to a maximum of $10,000 per employee per quarter, for a maximum credit of $28,000 per employee.
4. When can S-Corporations claim the Employee Retention Tax Credit?
S-Corporations can claim the Employee Retention Tax Credit on their quarterly Form 941. If you did not claim the credit on your quarterly Form 941, you can file a corrected Form 941-X to claim the credit. As mentioned earlier, you can claim the credit retroactively using Form 941-X.
5. What documentation is required to claim the Employee Retention Tax Credit?
To claim the Employee Retention Tax Credit, you must have documentation that shows the significant decline in gross receipts or the government order that caused the suspension of your business, as well as documentation of the qualified wages paid to employees. It is important to keep thorough documentation to support your claim.
6. How can I get help with the Employee Retention Tax Credit for my S-Corporation?
If you need help with the Employee Retention Tax Credit for your S-Corporation, it is recommended to work with an ERC expert. ERC Today offers assistance with navigating the ERC requirements and filing the application.
Final Thoughts
The Employee Retention Tax Credit can be a valuable tool for S-Corporations looking to save on taxes and offset payroll tax liabilities. By understanding the eligibility requirements and how to claim the credit, you can take advantage of this tax-saving provision.
However, it is important to note that the rules and requirements for the credit can be complex. It is recommended to work with an ERC expert to ensure that you are eligible for the credit and accurately reporting it. Additionally, it is important to keep thorough documentation to support your claim.
Overall, the Employee Retention Tax Credit can provide much-needed relief to S-Corporations during these challenging times. By taking advantage of this tax-saving provision, you can keep more money in your business and help it thrive.
Find Out More Ways to Increase the Tax Benefits of Your Business
We sincerely hope that this article has been beneficial in comprehending the Employee Retention Tax Credit for S-Corporations. Check out our other articles on tax-saving principles and business optimization strategies if you found this information useful.
We are dedicated to assisting companies like yours in saving money and expanding their operations at ertcguy.com. Our team of experts can assist you with tax planning, accounting, or business strategy. To find out more about how we can assist your company in succeeding, get in touch with us right away.
Questions
Who is eligible for the Employee Retention Tax Credit for S-Corporations?
S-Corporation owners who are also employees of the company.
What is the maximum credit for the Employee Retention Tax Credit for S-Corporations?
The maximum credit is $28,000 per employee for 2021.
How do S-Corporations claim the Employee Retention Tax Credit?
S-Corporations can claim the credit on their quarterly Form 941.
Who can S-Corporations get help with the Employee Retention Tax Credit from?
ERC Today offers assistance with navigating the ERC requirements.
What documentation is required to claim the Employee Retention Tax Credit?
Documentation showing the decline in gross receipts and qualified wages paid.
How can S-Corporations claim the Employee Retention Tax Credit if they received a PPP loan?
S-Corporations can claim the credit even if they received a PPP loan.
