Employee Retention Tax Credit Guide
The Employee Retention Tax Credit (ERTC) is a refundable tax credit available for businesses impacted by the COVID-19 pandemic. Small to medium-sized businesses struggling to retain their employees can benefit from the tax credit, which can be claimed for each qualifying quarter from January 1, 2021, through June 30, 2021.
According to the IRS, eligible employers can receive up to 50% of qualifying wages paid from March 13th to October 1, 2021. The credit is available to businesses that paid employees during the pandemic or had significant declines in gross receipts. Recovery startup businesses can claim the credit in Q4 2021.
Importance of the Employee Retention Tax Credit
The pandemic has caused significant disruption to businesses across the globe, and many have been forced to lay off employees or shut down altogether. The ERTC was created to help businesses keep employees on payroll during these trying times. The credit can provide much-needed relief to businesses struggling to make ends meet and retain their workforce.
Purpose of the Employee Retention Tax Credit Guide
The purpose of this guide is to provide detailed information on the ERTC and how eligible businesses can claim the credit. We will cover eligibility requirements, how to claim the credit, and key dates for the credit. We will also provide tips on how to maximize your savings with the ERTC.
Eligibility Requirements for the Employee Retention Tax Credit
To claim the ERTC, businesses must meet certain eligibility requirements. The following are the key requirements:
-
Significant decline in gross receipts: Eligible businesses must have experienced a full or partial suspension of their business operations due to a government order, or a significant decline in gross receipts. In 2020, a significant decline is defined as a decrease of 50% or more in gross receipts when compared to the same quarter in 2019. In 2021, a significant decline is defined as a decrease of 20% or more in gross receipts when compared to the same quarter in 2019.
-
Employer size: The ERTC is available to businesses with less than 500 full-time employees. All full-time and full-time equivalent employees are eligible for the credit at companies with less than 100 full-time employees.
-
Qualified wages: Eligible employers must have paid qualified wages to their employees during the pandemic. Qualified wages are subject to Medicare tax and are limited to $10,000 per employee for all quarters. Qualified wages are wages paid between March 13, 2020, and December 31, 2021.
-
PPP loan recipients: For businesses that received a Paycheck Protection Program (PPP) loan, they can still claim the ERTC. However, they cannot claim the credit on wages used for PPP loan forgiveness.
According to CBH, employers can claim the credit by reducing their payroll tax deposits or filing Form 7200 for an advance payment. It's important to note that the credit cannot be used for payments of mandated paid FMLA and sick leave pay wages or wages for which the employer is claiming a credit for paid family medical leave.
Before claiming the credit, businesses should consult with a tax professional to ensure they meet all eligibility requirements and are claiming the credit correctly.
How to Claim the Employee Retention Tax Credit
If your business is eligible for the ERTC, you can claim the credit on your business tax return. Here's how to claim the credit:
-
Calculate the credit: Calculate the credit based on the qualified wages paid to eligible employees during the qualifying period. According to SnackNation, eligible employers can receive up to 50% of qualifying wages paid from March 13th to October 1, 2021. In 2021, eligible employers can receive up to 70% of qualifying wages paid per quarter.
-
Reduce payroll taxes: If the credit exceeds the employer's share of Social Security tax owed for the quarter, the excess credit can be refunded or applied to the next quarter's payroll tax deposits.
-
File Form 941: Claim the ERTC on Form 941, Employers Quarterly Federal Tax Return, for the applicable calendar quarter. Businesses can claim the credit on their 2020 and 2021 tax returns.
-
File Form 7200: If the ERTC is larger than the employer's share of Social Security tax owed for the quarter, they can file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to receive an advance payment of the credit.
According to Disaster Loan Advisors, businesses can claim the credit on their tax return for the quarter in which they qualify. For example, if a business qualifies for the credit in Q1 2021, they can claim the credit on their Q1 tax return. It's important to note that businesses cannot claim the credit on wages that were already used for PPP loan forgiveness.
Before claiming the credit, businesses should consult with a tax professional to ensure they are claiming the credit correctly and maximizing their savings.
Key Dates for the Employee Retention Tax Credit
The ERTC is available for qualifying employers from March 13, 2020, to December 31, 2021. Here are some key dates to keep in mind when claiming the credit:
-
March 13, 2020: The ERTC was effective from March 13, 2020.
-
2020 tax year: Eligible employers can claim the credit on their 2020 tax return for all eligible quarters in 2020.
-
June 30, 2021: The eligibility requirements for the ERTC changed on July 1, 2021. Employers can claim the credit for the first two quarters of 2021 under the previous eligibility requirements.
-
July 1, 2021: Eligibility requirements changed on July 1, 2021. Employers can claim the ERTC for the third and fourth quarters of 2021 under the new eligibility requirements.
-
December 31, 2021: The ERTC is set to expire on December 31, 2021.
According to the IRS, businesses can claim the ERTC on their employment tax returns for each quarter they are eligible. If a business is not eligible for the credit in one quarter, they may be eligible in a later quarter.
It's important to keep track of key dates and deadlines to ensure you are claiming the credit correctly and maximizing your savings. Businesses should consult with a tax professional to ensure they are meeting all key dates and deadlines for the ERTC.
Benefits of Claiming the Employee Retention Tax Credit
Claiming the ERTC can provide significant benefits for eligible businesses. Here are some benefits of claiming the ERTC:
-
Maximize savings: The ERTC can provide eligible businesses with up to 50% of qualifying wages paid in 2020 and up to 70% of qualifying wages paid in 2021. Claiming the credit can help businesses maximize their savings and improve their financial position.
-
Retain employees: The ERTC was created to help businesses keep employees on payroll during the pandemic. By claiming the credit, businesses can retain their employees and avoid layoffs or furloughs.
-
Boost cash flow: The ERTC can provide eligible businesses with a significant cash infusion. By reducing payroll taxes or receiving an advance payment of the credit, businesses can improve their cash flow and invest in their operations.
-
Reduce tax liability: Claiming the ERTC can reduce a business's tax liability. The credit is refundable, meaning that if the credit exceeds the employer's share of Social Security tax owed for the quarter, the excess credit can be refunded or applied to the next quarter's payroll tax deposits.
-
Simplify tax reporting: Claiming the ERTC can simplify tax reporting for eligible businesses. The credit can be claimed on Form 941, Employers Quarterly Federal Tax Return, for the applicable calendar quarter.
According to Buchanan Ingersoll & Rooney PC, businesses should carefully consider the benefits of claiming the ERTC and consult with a tax professional to ensure they are maximizing their savings. By claiming the credit, businesses can improve their financial position, retain their employees, and simplify tax reporting.
Eligibility Requirements for the Employee Retention Tax Credit
To qualify for the ERTC, businesses must meet certain eligibility requirements. Here are the eligibility requirements for the ERTC:
Significant decline in gross receipts
Eligible businesses must have experienced a significant decline in gross receipts. According to the IRS, a significant decline in gross receipts is defined as a 50% or more decline in gross receipts for a calendar quarter in 2020 or a 20% or more decline in gross receipts for a calendar quarter in 2021.
Partial or full suspension of business operations
Eligible businesses must have experienced a partial or full suspension of business operations due to government orders related to COVID-19. According to Cherry Bekaert, a partial suspension occurs when a government order causes a significant portion of a business's operations to be suspended, while a full suspension occurs when a government order causes a complete suspension of a business's operations.
PPP loan recipients
Businesses that received a PPP loan can still qualify for the ERTC, but they cannot claim the credit on wages that were used for PPP loan forgiveness.
Employee count
According to SnackNation, businesses with less than 100 full-time employees can claim the credit for all employees, including those who are not working. For businesses with more than 100 full-time employees, only wages paid to employees who are not working can be included in the credit calculation.
It's important to note that eligibility requirements for the ERTC changed on July 1, 2021. Eligible businesses can claim the ERTC for the first two quarters of 2021 under the previous eligibility requirements and the third and fourth quarters of 2021 under the new eligibility requirements. Businesses should consult with a tax professional to ensure they are meeting all eligibility requirements for the ERTC.
Start Claiming the Employee Retention Tax Credit Today!
The Employee Retention Tax Credit can provide significant benefits for eligible businesses, including maximizing savings, retaining employees, boosting cash flow, reducing tax liability, and simplifying tax reporting. By meeting the eligibility requirements and claiming the credit, businesses can improve their financial position and invest in their operations.
If you are interested in claiming the ERTC, you should consult with a tax professional to ensure you are meeting all key dates and eligibility requirements. Here are some steps you can take to start claiming the ERTC today:
-
Gather necessary information: To claim the ERTC, you will need to gather information on your business's gross receipts, employee count, and payroll tax deposits.
-
Determine eligibility: Determine whether your business meets the eligibility requirements for the ERTC, including a significant decline in gross receipts and a partial or full suspension of business operations.
-
Calculate the credit: Calculate the credit based on eligible wages paid and the percentage of the credit allowed.
-
Claim the credit: Claim the credit on Form 941 or Form 7200, depending on whether you are reducing payroll tax deposits or requesting an advance payment of the credit.
By following these steps and consulting with a tax professional, you can start claiming the ERTC today and maximize your savings.
Thank you for reading our Employee Retention Tax Credit Guide. Check out our other great content for more valuable information on taxes, business, and finance!
Frequently Asked Questions
Who is eligible for the employee retention tax credit?
Eligible businesses that experienced a significant decline in gross receipts or
What is the employee retention tax credit?
The ERTC is a refundable tax credit that helps businesses retain employees by
How can businesses claim the employee retention tax credit?
Businesses can claim the ERTC by reducing payroll tax deposits or filing Form
Who can businesses claim the employee retention tax credit for?
Businesses can claim the ERTC for all full-time and full-time equivalent
What if a business received a PPP loan, can they still claim the ERTC?
Yes, businesses that received PPP loans can still claim the ERTC, but not for
How much of the employee retention tax credit can businesses receive?
Eligible businesses can receive up to 70% of qualifying wages paid in 2021 and
What if a business has already filed their tax returns for 2020 or 2021?
Businesses can still claim the ERTC for previous quarters by filing Form 941-X
