Employee Retention Tax Credit Renewal: How Small Businesses Can Benefit from this Tax Credit
The Employee Retention Tax Credit Renewal (ERTC) is a tax credit that can help businesses that have been impacted by the pandemic. The credit is available to private-sector businesses and tax-exempt organizations that have experienced a full or partial shutdown, gross receipts decline of more than 50%, or are a “recovery startup” business with average annual gross receipts not exceeding $1 million.
Small businesses can benefit from the ERTC, as it is a refundable tax credit for businesses that paid employees during the pandemic or had significant declines in gross receipts. Eligible employers can claim the credit on their tax returns, and recovery startup businesses can claim it in Q4 2021.
The ERTC is set to expire, but eligible businesses can still claim the credit for qualified wages paid to employees through December 31, 2021. It is important for small businesses to take advantage of this tax credit to help them recover from the pandemic's economic impact.
In this article, we will discuss the Employee Retention Tax Credit Renewal and how small businesses can benefit from it. We will cover eligibility criteria, how to claim the credit, and the benefits of the ERTC for small businesses.
What is the Employee Retention Tax Credit Renewal?
The Employee Retention Tax Credit (ERTC) Act and was extended under the Consolidated Appropriations Act, 2021.
Eligibility criteria
To be eligible for the ERTC, small businesses must meet one of the following criteria:
- The business had a full or partial suspension of operations due to a government order related to COVID-19, or
- The business experienced a significant decline in gross receipts, which is defined as a decline of more than 50% in any quarter compared to the same quarter in 2019, or
- The business is a “recovery startup” business with average annual gross receipts not exceeding $1 million
According to SHRM, the ERTC has been extended through December 31, 2021. Eligible employers can receive a refundable tax credit of up to $5,000 per employee for wages paid between March 13, 2020, and December 31, 2020. For wages paid between January 1, 2021, and December 31, 2021, eligible employers can receive a refundable tax credit of up to $7,000 per employee per quarter.
How much can eligible employers receive?
The maximum credit amount for each employee is $28,000 for 2021. Eligible employers can claim the credit against the employer's share of Social Security taxes or railroad retirement taxes. Additionally, the credit is refundable, which means that if the credit exceeds the employer's share of Social Security taxes, the excess amount will be refunded to the employer.
The Employee Retention Tax Credit Renewal is a valuable tool for small businesses that can help them recover from the pandemic's economic impact. In the next section, we will discuss the eligibility criteria for the ERTC in more detail.
Eligibility Criteria
To qualify for the Employee Retention Tax Credit Renewal, small businesses must meet certain eligibility criteria. In this section, we will discuss the three tests that businesses must meet to be eligible for the ERTC.
Gross receipts test
According to the IRS, a business must demonstrate a significant decline in gross receipts to be eligible for the ERTC. A significant decline is defined as a decline of more than 50% in any quarter compared to the same quarter in 2019.
Full or partial suspension test
If a business had to suspend its operations due to a government order related to COVID-19, it may be eligible for the ERTC. According to the IRS, a business is considered to have a full or partial suspension of operations if the government order required the business to fully or partially suspend its operations.
Recovery startup business test
According to AARP, recovery startup businesses are also eligible for the ERTC. A recovery startup business is a business that began operating after February 15, 2020, and has average annual gross receipts that do not exceed $1 million.
Eligibility for governmental employers
Certain governmental employers are also eligible for the ERTC. According to Senator Schatz's website, governmental employers that are not tax-exempt organizations can claim the ERTC if they experience a 20% reduction in gross receipts for a quarter in 2021 compared to the same quarter in 2019, or if operations are fully or partially suspended due to COVID-19 lockdown orders.
Small businesses that meet any of the eligibility criteria for the ERTC should take advantage of this tax credit to help them recover from the pandemic's economic impact. In the next section, we will discuss how to claim the Employee Retention Tax Credit Renewal.
How to Claim the Employee Retention Tax Credit Renewal
Small businesses that meet the eligibility criteria for the Employee Retention Tax Credit Renewal should take advantage of this valuable tax credit. In this section, we will discuss how to claim the ERTC.
Claiming the ERTC on Form 941
According to the IRS, eligible employers can claim the ERTC on Form 941, Employer's Quarterly Federal Tax Return. Employers can reduce their payroll tax deposits by the amount of the anticipated credit. If the anticipated credit exceeds the employer's share of Social Security tax liability, the employer can request an advance payment of the credit from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Claiming the ERTC on Form 941-X
If an employer already filed Form 941 and did not claim the ERTC, they can file an adjusted return on Form 941-X to claim the credit. According to CLA, the deadline for amended payroll tax returns is April 15, 2024, for 2020 and April 15, 2025, for 2021.
Be cautious of ERC schemes
According to AARP, the IRS has warned employers to be cautious of ERC schemes. Employers should be careful of tax preparers advertising heavily on radio and the internet and ensure they are dealing with a legitimate tax adviser.
Small businesses that meet the eligibility criteria for the ERTC can benefit greatly from this refundable tax credit. In the next section, we will discuss the importance of being cautious of third-party advice when claiming the ERTC.
Be Cautious of Third-Party Advice When Claiming the ERTC
Small businesses that are eligible for the Employee Retention Tax Credit Renewal should be cautious of third-party advice when claiming the credit. In this section, we will discuss the importance of being cautious of third-party advice and how to avoid ERC-related penalties.
Penalties for erroneous claims
According to the IRS, employers should be cautious of third-party advice when claiming the ERTC. Employers are responsible for the accuracy of their tax returns, even if they use a third-party preparer. If an employer claims the ERTC based on erroneous information or advice from a third party, they may be subject to penalties.
Penalty relief for reasonable errors
However, the IRS does offer penalty relief to employers who make reasonable errors when claiming the ERTC. According to the IRS, employers who claim the ERTC for the first two quarters of 2021 and meet certain criteria may be eligible for penalty relief if they make reasonable errors.
How to avoid ERC-related penalties
According to SHRM, employers can avoid ERC-related penalties by doing the following:
- Ensuring they are eligible for the credit based on the eligibility criteria.
- Keeping accurate records of all qualified wages and health plan expenses.
- Filing accurate payroll tax returns.
- Claiming the correct amount of the credit.
Small businesses that are eligible for the ERTC should be cautious of third-party advice when claiming the credit. Employers should take the time to educate themselves on the eligibility criteria and how to properly claim the credit to avoid ERC-related penalties.
Conclusion: Conclusion
A useful tax credit that can aid small businesses in recovering from the pandemic's economic effects is the Employee Retention Tax Credit Renewal. The credit is available to eligible businesses to claim on their tax returns or to file an adjusted return. Employers must, however, be cautious when claiming the ERTC and make sure they meet the requirements for eligibility to prevent penalties.
Small businesses should be aware of the ERTC's eligibility requirements and keep accurate records of all paid wages and medical expenses. Small businesses can greatly benefit from this refundable tax credit and continue to support their employees during these trying times by correctly claiming the credit.
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Questions & Answers
Who is eligible for the employee retention tax credit renewal?
Eligible employers include those who experienced a full or partial shutdown, gross receipts decline of more than 50%, or are a “recovery startup” business with average annual gross receipts not exceeding $1 million.
What is the employee retention tax credit renewal?
The ERTC is a refundable tax credit for businesses that paid employees during the pandemic or had significant declines in gross receipts. It can be claimed on tax returns or through an amended payroll tax return.
How much is the employee retention tax credit renewal worth?
The ERTC is worth up to $7,000 per quarter per employee for eligible employers.
Who can help me claim the employee retention tax credit renewal?
You can work with a tax professional or use tax software to help you properly claim the ERTC.
What if I claimed the employee retention tax credit renewal incorrectly?
Employers who claim the ERTC based on erroneous information or advice from a third party may be subject to penalties, but penalty relief is available for reasonable errors.
How long do I have to claim the employee retention tax credit renewal?
Eligible employers can claim the ERTC on their tax returns or file an amended payroll tax return within three years of filing.
