What is the Employee Retention Tax Credit Program?
The Employee Retention Tax Credit Program (ERTC) is a refundable tax credit program created by the United States government to encourage businesses to keep their employees on payroll during the COVID-19 pandemic. It is available for businesses that experienced significant declines in gross receipts or were fully or partially suspended due to government orders related to COVID-19. The credit can be claimed on qualified wages paid after March 12, 2020, through December 31, 2021, and is retroactively available until 2024 or 2025.
The ERTC is a valuable program for businesses that have been impacted by the pandemic and need financial support to keep their employees. In this article, we will discuss the eligibility criteria for the program, how to claim the credit, how much businesses can receive, the benefits of the program for businesses, common mistakes to avoid, and resources that are available to help businesses with the program.
Eligibility for the Employee Retention Tax Credit Program
To qualify for the Employee Retention Tax Credit Program, businesses must meet certain eligibility criteria. The following subsections detail these criteria and source information.
Significant Decline in Gross Receipts
Businesses are eligible for the ERTC if they experienced a significant decline in gross receipts. The IRS defines a significant decline as a decrease in gross receipts of at least 50% in any quarter compared to the same quarter in the previous year. Alternatively, businesses can qualify if they had a significant decline in gross receipts in the first, second, or third quarter of 2021 compared to the same quarter in 2019. (IRS)
Partial or Full Suspension of Business Operations
Businesses can also qualify for the ERTC if they were fully or partially suspended due to government orders related to COVID-19. This includes businesses that had to close their physical locations or reduce their hours of operation due to government orders. (Paychex)
Qualified Wages
The ERTC can be claimed on qualified wages paid after March 12, 2020, through December 31, 2021, but only on wages that were not forgiven under the Paycheck Protection Program (PPP). The credit can be claimed against 70% of qualified wages paid, up to $10,000 per employee per quarter in 2021, and 50% of qualified wages up to $10,000 per employee annually for wages paid between March 13 and December 31, 2020. (Lendio)
Retroactive Claims
Businesses can retroactively claim the ERTC until 2024 or 2025 by conducting a lookback on their payroll during the pandemic and filing an amended tax return. (Paychex)
Consult a Professional
It is recommended that businesses work with their accountant or payroll specialist to determine if they qualify for the ERTC. Third-party advice should be approached with caution, and businesses should be aware that penalty relief is available for claims related to the credit. (IRS)
How to Claim the Employee Retention Tax Credit Program
To claim the Employee Retention Tax Credit Program, businesses must file Form 941, which is the Employer's Quarterly Federal Tax Return. The following subsections detail the steps businesses need to take to claim the credit.
Calculate the Credit
Before claiming the ERTC, businesses need to calculate the credit they are eligible for. This calculation requires businesses to determine their qualified wages and the amount of credit they can claim against those wages. (SnackNation)
Amend Tax Returns
To claim the credit retroactively, businesses need to file an amended tax return. Businesses have until April 2024 and April 2025 to amend their tax filings for 2020 and 2021, respectively. (Lendio)
Claim the Credit on Quarterly Tax Returns
Businesses can claim the ERTC on their quarterly tax returns for the quarters they are eligible for. This means that businesses can receive the credit in advance rather than waiting until they file their annual tax return. (US Chamber of Commerce)
Work with an Accountant or Payroll Specialist
It is recommended that businesses work with their accountant or payroll specialist to ensure they are correctly calculating and claiming the ERTC. Businesses should be aware that they cannot double-dip for credits and must work with their accountant or payroll specialist to ensure they are not claiming the credit on wages that were forgiven under PPP. (Paychex)
Benefits of the Employee Retention Tax Credit Program
The Employee Retention Tax Credit Program offers several benefits to businesses that qualify for the credit. The following subsections detail these benefits.
Financial Relief
The ERTC provides financial relief to businesses that have been impacted by the COVID-19 pandemic. The credit can be claimed against qualified wages paid after March 12, 2020, through December 31, 2021, and can be claimed on a quarterly basis. The credit is refundable, which means that businesses can receive the credit even if they have no tax liability. (SnackNation)
Retain Employees
The ERTC is designed to encourage businesses to retain their employees by providing a financial incentive to do so. By claiming the credit, businesses can reduce their labor costs and keep their employees on payroll. This can be crucial for businesses that have been impacted by the pandemic and need to preserve their workforce for when business picks up. (US Chamber of Commerce)
Retroactive Claims
The ERTC can be claimed retroactively, which means that businesses can receive a credit for qualified wages paid in 2020 and 2021. This can provide a significant financial boost to businesses that have been struggling due to the pandemic. (Lendio)
No Limit on Employees
There is no limit on the number of employees that businesses can claim the ERTC for. This means that businesses can claim the credit for all eligible employees, which can result in significant savings. (SnackNation)
No Obligation to Reimburse
Employers are under no obligation to reimburse the ERTC tax credit. This means that businesses can claim the credit without having to worry about paying it back at a later date. (SnackNation)
Common Questions about the Employee Retention Tax Credit Program
The Employee Retention Tax Credit Program can be a valuable resource for businesses impacted by the COVID-19 pandemic. However, businesses may have questions about the program and how it works. The following subsections answer some common questions about the ERTC.
Can businesses claim the ERTC and the PPP?
Businesses cannot claim the ERTC on wages that were forgiven under the Paycheck Protection Program (PPP). However, businesses that received PPP loans are still eligible for the ERTC on wages that were not forgiven under the PPP. (Lendio)
Can businesses claim the ERTC and other tax credits?
Businesses cannot double-dip for credits. This means that businesses cannot claim the ERTC and other tax credits for the same wages. (Paychex)
Can self-employed individuals claim the ERTC?
Self-employed individuals cannot claim the ERTC for their own wages. However, they may be able to claim the credit for wages paid to their employees. (US Chamber of Commerce)
Do businesses have to pay back the ERTC?
Businesses do not have to pay back the ERTC. The credit is refundable, which means that businesses can receive the credit even if they have no tax liability. (SnackNation)
Can businesses claim the ERTC for employees who are not working?
Businesses can claim the ERTC for employees who are not working, as long as they are still paying those employees. The credit can be claimed on qualified wages paid to those employees, even if they are not working. (Paychex)
Eligibility for the Employee Retention Tax Credit Program
The Employee Retention Tax Credit Program is available to certain businesses that have been impacted by the COVID-19 pandemic. The following subsections detail the eligibility requirements for the ERTC.
Business Size
Businesses with less than 500 employees are generally eligible for the ERTC. However, there are exceptions for businesses in certain industries. (SnackNation)
Significant Decline in Gross Receipts
Businesses that have experienced a significant decline in gross receipts are eligible for the ERTC. A significant decline in gross receipts is defined as a decline of 20% or more in gross receipts compared to the same quarter in 2019. (IRS)
Partial or Full Suspension of Operations
Businesses that were fully or partially suspended due to a government order are eligible for the ERTC. A partial suspension means that the business was unable to operate at full capacity due to a government order. (Paychex)
Qualified Wages
Qualified wages are wages paid to employees during the period of eligibility. Qualified wages can include both cash and non-cash compensation, such as health benefits. However, qualified wages cannot include wages that were forgiven under the PPP. (US Chamber of Commerce)
Recovery Startup Businesses
Recovery startup businesses are eligible for the ERTC in Q4 2021. A recovery startup business is a business that started operations after February 15, 2020, and has average annual gross receipts of $1 million or less. (IRS)
Third-party Advice
Businesses should be cautious of third-party advice when claiming the ERTC. The IRS has warned that some third-party advisors are improperly claiming the credit on behalf of businesses and charging a fee for their services. (IRS)
How to Claim the Employee Retention Tax Credit Program
Businesses that are eligible for the Employee Retention Tax Credit Program can claim the credit on their tax returns. The following subsections detail the steps businesses need to take to claim the ERTC.
Determine Eligibility
Before claiming the ERTC, businesses need to determine whether they are eligible for the credit. This involves reviewing the eligibility requirements and calculating the amount of the credit. (Paychex)
File Form 941
Employers can claim the ERTC by filing Form 941, which is the Employer's Quarterly Federal Tax Return. Employers can claim the credit on Line 11c of Form 941. (IRS)
File Form 941-X
Employers can claim the ERTC retroactively by filing Form 941-X, which is the Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund. Employers can use Form 941-X to claim the credit for previous quarters. (IRS)
Work with Accountant and Payroll Specialist
Businesses should work with their accountant and payroll specialist to determine their eligibility for the ERTC and to claim the credit. These professionals can help businesses navigate the complex rules and regulations surrounding the credit and ensure that they are claiming the credit correctly. (Paychex)
Keep Records
Businesses should keep records of all qualified wages paid and the amount of the credit claimed. This can help businesses in the event of an IRS audit and ensure that they are claiming the credit correctly. (US Chamber of Commerce)
Take Advantage of the Employee Retention Tax Credit Program
The Employee Retention Tax Credit Program can be a valuable resource for businesses impacted by the COVID-19 pandemic. By claiming the credit, businesses can receive a refundable tax credit for qualified wages paid to employees. The following subsections summarize the key takeaways from this article and encourage readers to check out other content on our website.
Eligibility Requirements
Businesses must meet certain eligibility requirements to claim the ERTC. These requirements include a significant decline in gross receipts or a partial or full suspension of operations due to a government order. Businesses should work with their accountant and payroll specialist to determine their eligibility for the credit. (Paychex)
Claiming the Credit
Businesses can claim the ERTC on their tax returns or retroactively by filing an amended return. Businesses must keep records of all qualified wages paid and the amount of the credit claimed. (US Chamber of Commerce)
Other Considerations
Businesses should be cautious of third-party advisors when claiming the ERTC and should not double-dip for credits. Businesses cannot claim the ERTC on wages that were forgiven under the PPP. (IRS)
Check Out Our Other Great Content
If you found this article helpful, be sure to check out our other great content on the latest tax credits and business news. Our website is dedicated to providing valuable resources to businesses and entrepreneurs.
Questions & Answers
Who is eligible for the Employee Retention Tax Credit Program?
Eligible employers include those who suffered a significant decline in gross receipts or were fully or partially suspended due to a government order.
What is the maximum amount of the Employee Retention Tax Credit?
Employers can claim up to $10,000 per employee annually for wages paid between March 13 and Dec. 31, 2020, and up to $10,000 per employee per quarter in 2021.
How can businesses claim the Employee Retention Tax Credit Program?
Businesses can claim the ERTC on their tax returns or retroactively by filing an amended return.
Who can businesses work with to claim the Employee Retention Tax Credit?
Businesses should work with their accountant and payroll specialist to determine their eligibility for the credit.
What should businesses do if they have already received a PPP loan?
Businesses cannot claim the ERTC on wages that were forgiven under the PPP.
How can businesses ensure they are claiming the Employee Retention Tax Credit correctly?
Businesses should keep records of all qualified wages paid and the amount of the credit claimed.
