Are you a business owner struggling to keep your employees paid? If so, the Employee Retention Credit (ERTC) is here to help.
This refundable tax credit allows businesses to claim qualified wages and certain health care costs for their employees.
In this article, we’ll explain how the ERTC works, who qualifies for it, what kinds of wages qualify, and when you need to apply by.
So if you want to take advantage of this great opportunity, read on!
Overview
Wondering how to benefit from the Employee Retention Credit? Look no further! The ERTC is a refundable credit that businesses can claim on qualified wages, including certain health insurance costs, paid to employees.
Qualified employers can claim this tax credit against 50 percent of qualified wages paid up to $10,000 annually for wages paid between March 13 and Dec. 31, 2020 under the CARES Act. The Consolidated Appropriations Act of 2021 increased the amount of wages that qualifies for the credit to $10,000 per employee per quarter with a 70% credit rate.
The American Rescue Plan Act kept the rate at 70% but decreased the limit to $7,000 per employee per quarter for most businesses while Recovery Startup Businesses were eligible through all of 2021 with a maximum credit of $50,000 per employee for Q3 and Q4. If your business meets any of these qualifications you may be able to take advantage of this tax break and get some extra cash back in your pocket!
When it comes time to reconcile your taxes at the end of each quarter you will need to submit Form 941 which shows your employer’s liability against Social Security or Medicare taxes as well as any excess credits due back from what was claimed during that period. For wages paid after June 30th 2021 nonrefundable pieces are credited against Medicare taxes instead Social Security taxes as they had been in 2020.
So why wait? Take advantage now and start getting money back into your business today!
How to Claim
You may be asking yourself how to take advantage of the Employee Retention Credit; thankfully, the IRS has put together a comprehensive guide on claiming this credit that can help you make the most of this opportunity.
To begin, employers should review their payroll and determine which wages qualify for the credit. Qualified wages include those paid between March 12, 2020 and Sept. 30, 2021. In addition to regular salary or wages, employers must also consider bonuses and other compensation when determining eligible qualified wages.
Once you’ve determined which wages are eligible for the credit, you’ll need to calculate your total liability for both Social Security taxes and Medicare taxes on these wages in order to claim the credit.
As per IRS Notice 2021-20, any excess amount of the credit beyond what is due in Social Security or Medicare taxes must be refunded back to the employer.
For employers who have already claimed their PPP loan, there is an additional step: they must subtract their PPP loan forgiveness from their gross income before calculating their ERTC eligibility. This will ensure that they are able to receive full benefits from both programs without any overlap issues.
Additionally, after June 30th 2021 employers must claim their credits against Medicare taxes instead of Social Security as previously done prior to this date change.
With all these factors taken into consideration, it’s clear that understanding how exactly to apply for and successfully claim these credits can be a complex process, but with proper guidance, it can be achieved with relative ease.
Who Qualifies?
You may qualify for the Employee Retention Credit if your business was Fully or Partially Suspended as a result of government orders related to COVID-19, or if you experienced a Significant decline in gross receipts.
Additionally, businesses who are classified as Recovery Startup Businesses (RSBs) may be eligible to take a credit of up to $50,000 for the third and fourth quarters of 2021.
To determine whether your organization is an RSB, you can consult with your tax advisor.
Fully or Partially Suspended
Have your business been fully or partially suspended due to a government order? Don’t miss out on the Employee Retention Tax Credit!
The ERTC is a refundable credit businesses can claim on qualified wages, including certain health insurance costs, paid to employees. This includes employers whose trade or business has been either fully or partially suspended by a government order in any calendar quarter of 2020 or 2021.
Businesses may be eligible for the credit if they meet this factor test:
1) Businesses that were fully or partially suspended;
2) Essential businesses that had supply of critical material/goods disrupted in manner that affects their ability to continue to operate;
3) Businesses shuttered but able to continue their operations largely intact through telework;
4) Any of these businesses still may qualify for the credit with the second factor test.
To determine eligibility and claim the credit, employers must submit IRS Form 941-X along with required documents and keep records verifying eligibility requirements are met.
It’s important for employers to take advantage of this potentially lucrative tax break as it could save them thousands per employee annually.
Significant decline in gross receipts
If your business has experienced a significant decline in gross receipts this year, you may be eligible for the ERTC – a refundable credit that could save you thousands per employee.
Under the CARES Act, if your gross receipts in a calendar quarter are below 50% of the same quarter in 2019, then you qualify. If your gross receipts exceed 80% of what they were in that same quarter from 2019, then you will no longer be eligible.
The Consolidated Appropriations Act of 2021 increased the eligibility requirements to any business forced to close or quarantine or those who have seen more than 20% drop in gross receipts compared to the same quarter from 2019.
Additionally, businesses can also use their immediately preceding calendar quarter’s figures as reference instead of using 2019 figures for determining eligibility.
Finally, businesses taking advantage of the American Rescue Plan Act now have the option to claim their tax credits against Medicare taxes instead of Social Security taxes after June 30th 2021.
Recovery Startup Business
Are you a small business that started after February 15, 2020? You may be eligible to claim up to $50,000 in ERTC for the third and fourth quarters of 2021!
The American Rescue Plan Act created a new category for businesses who may qualify for the Employee Retention Tax Credit (ERTC). To qualify as a Recovery Startup Business, your business must have begun carrying on trade or business after Feb. 15, 2020; have annual gross receipts that do not exceed $1 million; and not be eligible for the ERTC under the other two categories – partial/full suspension of operations or decline in gross receipts.
The Infrastructure Investment and Jobs Act also removed a condition of eligibility so that all Recovery Startups are now eligible in 4th quarter.
Additionally, the IRS notice 2021-49 clarified that Recovery Startups may use all qualified employee wages for purposes of the credit regardless of how many employees there are.
When claiming these credits at the end of each quarter they should be reconciled on Form 941 with any excess being refunded to employers in either Social Security taxes or Medicare taxes depending on when it was paid before June 30th or after June 30th respectively.
What wages qualify?
Struggling to make ends meet? The ERTC could provide much-needed relief by covering qualified wages for up to 500 employees.
Qualified wages include:
- FICA taxes,
- Pretax health expenses,
- Wages paid between March 13 and September 30, 2021 (Recovery Startup Businesses had until December 31, 2021), and
- Wages paid to employees not providing services due to a suspension or decline in business.
The American Rescue Plan Act stipulates that the nonrefundable pieces of the employee retention tax credit will be claimed against Medicare taxes instead of against Social Security taxes as they were in 2020.
Additionally, employers with 100 or fewer full-time employees can use all employee wages — those working, as well as any time paid not being at work with the exception of paid leave provided under the Families First Coronavirus Response Act. This law also allowed certain hardest-hit businesses — severely financially distressed employers — to claim the credit against all employees’ qualified wages instead of just those who are not providing services. These businesses must have gross receipts in the quarter less than 10% of what they were in a comparable quarter in 2019 or 2020.
It’s important for employers to determine their eligibility and understand how these credits work so that their business can take advantage of this relief measure.
Is there a deadline?
You’ve got to act fast! Businesses have until April 15, 2024, to file amended returns for 2020 and until April 15, 2025, to file amended returns for 2021 quarters – don’t miss out on this much-needed relief!
The Employee Retention Credit (ERTC) is a refundable tax credit that businesses can claim on qualified wages paid to employees from March 13 of 2020 through December 31 of 2021.
The American Rescue Plan Act of 2021 allows employers who qualify for the ERTC, including those who took a loan under the initial PPP, to claim a credit against 70% of qualified wages paid per employee up to $10,000 per quarter.
Additionally, if the credit exceeds the employer’s total liability of Social Security or Medicare taxes in any calendar quarter then the excess will be refunded back to them.
At the end of each quarter employers must reconcile their credits with Form 941.
With an impending deadline set by Congress and generous amounts available through both 2020 and 2021 relief acts it’s important that businesses take advantage of these opportunities in order to receive much needed financial assistance during these challenging times.
To ensure that you’re not missing out on any potential savings check with your tax advisor or accountant today so you can make sure you’re taking full advantage before April 15th arrives!
Conclusion
You now know the ins and outs of the Employee Retention Credit, so it’s time to take action.
If you think your business qualifies, make sure to review all of the eligibility requirements and apply for the credit before any deadlines.
Don’t forget that there are a few different types of credits available, so be sure to choose the one that suits your business best.
With the right steps taken, you’ll be able to take advantage of this great tax benefit and keep more money in your pocket!
