Retaining the best employees is like an artist creating a masterpiece. To complete the painting, you must have the right elements in place to ensure that your work of art is kept safe and secure. The same concept applies to employee retention. A business must have the right incentives, like the Employee Retention Tax Credit, to make sure it holds on to its top talent.
Employee Retention Tax Credits provide businesses with financial incentives for keeping their staff employed through difficult economic times, such as the current pandemic. This IRS-backed incentive encourages businesses to keep workers on payroll while they navigate their way through an uncertain economy. Businesses who qualify can receive up to $5,000 per employee in tax credits each year they remain employed with their organization.
The Employee Retention Tax Credit (ERTC) is a powerful tool for businesses looking to reduce costs while still recognizing and rewarding their employees for their hard work and dedication. In this article we will look at how employers can take advantage of ERTCs, how they can maximize the benefit from them, and what pitfalls employers should watch out for when utilizing this valuable credit.
Overview Of The Ertc
The Employee Retention Tax Credit (ERTC) was established under the CARES Act to provide assistance to businesses affected by COVID-19. It offers a tax credit of up to $5,000 for each full-time employee per eligible employer. This credit is applied against Qualified Wages paid to employees after March 12, 2020 and before January 1, 2021. Eligible employers must have had a significant decline in gross receipts compared to the same quarter in 2019.
Qualified wages are those paid to employees between March 12 and December 31, 2020 that are not eligible for other federal unemployment benefits. The maximum amount of qualified wages that can be credited is $10,000 per employee for all quarters combined. The ERTC also provides an additional tax credit equal to the employer’s share of Social Security taxes on these wages.
Eligible employers must have experienced at least a 50% reduction in gross receipts during any calendar quarter in 2020 compared with their gross receipts in the same quarter in 2019. Employers who receive Paycheck Protection Program loans may still qualify for the ERTC if they meet other eligibility requirements. The ERTC can help employers cover costs associated with retaining their employees and providing them with wages during this challenging time. Transitioning into the next section, it’s important to understand the criteria that qualify an employer as eligible for this tax credit program.
Employer Eligibility Requirements
Time and tide wait for no man – this is especially true when it comes to the Employee Retention Tax Credit (ERTC) eligibility requirements. With the rules constantly changing, employers need to stay up to date with the latest ERTC qualifications in order to make sure they are eligible for the credit.
To be eligible for the ERTC tax credit, an employer must meet certain criteria. These criteria include:
The employer must have been carrying on a trade or business during 2020 and 2021.
The employer’s operations were fully or partially suspended due to orders from a governmental authority due to COVID-19.
The employer experienced a significant decline in gross receipts from 2019 to 2021.
The IRS also requires that employers who are applying for the ERC credit meet certain employee retention credit eligibility requirements, including maintaining employees on payroll and keeping records of wages paid throughout 2020 and 2021. Employers must also provide proof of their decline in gross receipts if they wish to qualify for the employee tax credit as well as other necessary information required by the IRS for claiming the ERC tax credit amount.
With these guidelines in mind, employers need to ensure that they are up-to-date with all of their employee retention credit irs requirements in order to maximize their benefits from this important tax relief program and ensure that their business is compliant with federal regulations. Taking all these steps will help businesses save money while providing much needed relief during a difficult time. From here, we’ll explore how employers can calculate their tax credit amounts under this program.
Tax Credit Amounts
The employee retention tax credit, also known as the ERC, is an IRS tax credit for employers affected by the Coronavirus pandemic. It allows businesses to reduce their employment taxes by up to $5,000 for each employee retained on their payroll. This credit can be claimed for qualified wages paid from March 13th, 2020 through December 31st, 2021.
Eligible employers are those who have either fully or partially suspended operations due to government orders related to COVID-19 or had a significant decline in gross receipts. To qualify for the ERC tax credit, employers must meet additional criteria as outlined by the IRS. These include having fewer than 500 employees and providing certain qualified wages to its employees that are not covered by another federal program such as unemployment benefits.
Employers may claim the ERC tax credit regardless of whether they have already received a loan under the Paycheck Protection Program (PPP). However, these payments will be taken into account when determining an employer’s total refund status under both programs. Companies should also check with their state government agencies regarding any additional employee retention credits available at the state level. With all this in mind, it’s important to understand how to apply for this federal tax credit and what steps need to be taken in order to receive it. Moving on to discuss the application process…
Application Process
Employers can apply for the Employee Retention Tax Credit (ERTC) by filing Form 941. This form is used to report wages, salaries, and other compensation paid to employees. The payments reported on this form are then used to calculate the amount of ERTC an employer may be eligible to receive. Employers must demonstrate that their business has been impacted by COVID-19 in order for them to qualify for the credit. They must also meet certain requirements in order to be eligible for the ERTC, such as using a Paycheck Protection Program (PPP) loan or having experienced a full or partial business closure due to government orders related to COVID-19.
In addition, employers must determine their qualified wages in order to calculate the ERTC they may receive. Qualified wages include those paid between March 13 and December 31, 2020, depending on whether an employer has experienced a full or partial business closure due to COVID-19. These qualified wages are based on the number of employees retained compared with the number of employees who worked prior to February 15, 2020.
It is important for employers to understand that there are differences between ERC PPP loans and ERC tax credits when it comes to eligibility criteria and documentation needed. Employers should familiarize themselves with all relevant rules related to ERTC eligibility, including retention credit CARES Act requirements, before applying for either option. With this understanding in place, employers can confidently proceed with gathering all necessary documentation needed for ERTC applications.
Documentation Needed For Ertc
The Employee Retention Tax Credit (ERTC) can be a financial lifesaver for businesses, but it’s important to understand what documentation is needed to apply. Like a jigsaw puzzle, the pieces of paperwork must come together in order to complete the application successfully.
Documentation Needed
Description
Payroll Records
Used to calculate wages paid to employees during the period of the ERTC and determine whether there have been reductions in gross receipts or full or partial suspension of operations due to COVID-19.
Form 941/944
Employers must submit federal quarterly payroll tax returns (Form 941 or 944) that document wages paid to employees during each quarter of 2020. These forms are also used for calculating any amount of the credit claimed.
Forms 1099-MISC and/or W-2s
Employers may need these forms when filing Form 941/944 and determining eligibility for the ERTC. They are also required when claiming a refundable credit on an original or amended return.
When it comes to gathering all the necessary paperwork, accuracy and timeliness are key components for a successful ERTC application process. Companies should take their time to ensure that all documents are properly collected and filed in order to meet all applicable deadlines. From here, companies can move onto understanding how to calculate qualifying wages for ERTC purposes.
How To Calculate Qualifying Wages
When calculating qualifying wages for the Employee Retention Tax Credit (ERTC) program, you must first calculate your quarterly wages. This includes any wages paid to employees or independent contractors that are reported on federal tax returns, Form 941 and Form 1099. It also includes payments made through the Paycheck Protection Program (PPP), as well as other employment tax deposits like FICA, Medicare, and Social Security taxes.
Next, you must determine if you meet the eligibility requirements for ERTC. Generally speaking, employers who experienced a full or partial business closure due to government orders or a significant decline in gross receipts are eligible for the refundable tax credit available through the CARES Act Employee Retention Credit (ERC). The IRS has established specific guidelines to help employers determine if they qualify for this credit.
In order to claim both the ERC and PPP relief funds, certain criteria must be met. For example, employers cannot use ERC wages that were already used to compute qualifying expenses in their PPP loan forgiveness application. Additionally, employers should keep track of their employee retention credit calculation and make sure not to exceed their ERC limit when computing payroll taxes for federal income tax filing purposes. With careful consideration of these requirements, employers can successfully file their IRS E-filing claims in compliance with government regulations.
Irs E-Filing Requirements
The American Rescue Plan has created an opportunity for business owners to receive the employee retention credit in 2021. This tax credit is designed to help businesses retain employees and cover certain wages, which are determined by each calendar quarter. In order to qualify for the employee retention credit, employers must have experienced a full or partial suspension of operations during the fourth quarter of 2020 due to the coronavirus pandemic and/or meet one of the other criteria outlined in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, or Disaster Tax Relief Act. Furthermore, employers must have paid wages during the same quarter that they received the employee retention credit.
Once businesses have determined their eligibility for the employee retention credit, it’s time to file with the IRS. Employers can elect whether to reduce their payroll taxes or claim a refundable tax credit when filing their taxes with the IRS. The form used to file for this particular tax benefit is Form 941-X and must be filed online through E-filing systems like TurboTax or H&R Block. It’s important to note that deadlines are constantly changing when it comes to filing taxes with the IRS, so it’s important to stay up-to-date on filing requirements and deadlines if you’re eligible for this benefit. Additionally, refunds may take longer than usual due to changes associated with COVID-19 relief efforts by the IRS; however there are ways employers can track refund status updates online.
Filing taxes correctly is key when claiming an employer retention tax credit and understanding all of your options prior to doing so will ensure you get your full refund from the IRS quickly and accurately. Knowing filing deadlines and refund status updates is essential in order for businesses to take advantage of this beneficial tax break provided by Congress under The American Rescue Plan Act of 2021.
Filing Deadlines And Refund Status Updates
With the CARES Act in place, businesses are now eligible to receive an employee retention tax credit (ERTC). The IRS has made it easier for employers to access this credit and understand the filing requirements. It is important to be aware of the deadlines and refund status updates concerning ERTC.
Here are some key points to remember:
Filing Deadlines
Employers may claim ERTC for wages paid in 2020 beginning on January 1st.
They must file Form 941-X with the IRS by July 31st, 2021.
Refund Status Updates
Employers who meet certain criteria can claim their ERTC as an advance payment from the IRS instead of having to wait until they file their taxes at the end of the year.
To do this, they need to fill out Form 7200 and submit it by February 28th, 2021.
The more employers learn about filing deadlines and refund status updates regarding their ERTC, the more likely they will be able to take full advantage of this employee retention wage benefit. This information could help struggling businesses with significant declines in gross receipts due to COVID-19 or new recovery startup business owners who are just getting started. Now that we have discussed filing deadlines and refund status updates related to ERTCs, let’s explore FAQs about employee retention credits.
Faq On Employee Retention Credits
With the passing of the CARES Act, a new tax credit has been made available for employers – the Employee Retention Tax Credit (ERTC). This credit is designed to help businesses keep their employees on payroll during this difficult time. The ERTC can be claimed by employers who meet certain criteria and have experienced significant revenue losses due to the COVID-19 pandemic. Business owners are encouraged to familiarize themselves with this program in order to maximize their tax savings. To that end, here are some Frequently Asked Questions about the Employee Retention Tax Credit.
Q: What is an Employee Retention Tax Credit?
A: The ERTC is a refundable tax credit equal to 50% of qualified wages paid up to $10,000 per employee. It is available for any business that has seen at least a 20% decline in gross receipts compared to 2019 or 2020, or if they have been mandated by government authorities to fully or partially suspend their operations due to the COVID-19 pandemic.
Q: Who qualifies for an Employee Retention Credit?
A: Eligible employers include those operating as C corporations and those operating as individuals, trusts, estates, and nonprofits. In addition, employers that received loans under the Paycheck Protection Program do not qualify for an ERTC but may still be eligible if they experience a revenue loss of more than 20%.
The amount of the retention credit depends on wages paid during particular periods as well as other factors such as whether it is a full or partial shutdown period and whether it is related to COVID-19 or not. Employers should consult with their tax advisors regarding eligibility and how best to maximize their benefit from this valuable tax credit.
Impact Of Ertc On Other Tax Credits
The Employee Retention Tax Credit (ERTC) has had a significant impact on other tax credits available to businesses and their owners. The credit is designed to incentivize employers to retain employees and lower wages during the COVID-19 pandemic. The credit allows eligible employers to claim a credit of up to $5,000 per employee for qualified wages paid after March 12, 2020 and before January 1, 2021.
This tax credit has an effect on other credits that owners may be eligible for. For example, the ERTC can reduce or eliminate the amount of wages that are subject to the Social Security payroll tax, thus reducing the employer’s liability under those taxes. Additionally, it may also impact other credits such as the Work Opportunity Tax Credit (WOTC) which provides incentives for businesses who hire people from traditionally underrepresented groups in the labor force.
The ERTC may also have an impact on other deductions and credits related to employee retention such as those related to health insurance premiums and retirement plan contributions. By reducing taxable income through these deductions, businesses can potentially benefit from a larger deduction or credit than they would have otherwise been able to obtain without taking advantage of the ERTC. Businesses should consult with their tax advisors when considering how taking advantage of this credit will affect their other tax credits and deductions.
Overall, understanding how the ERTC impacts other taxes and credits is important in order to maximize potential savings and take full advantage of all available financial incentives.
Financial Incentives & Benefits Of Ertc
The Employee Retention Tax Credit (ERTC) offers a unique opportunity for business owners to receive financial incentives and benefit their employees. By utilizing this tax credit, businesses are able to reduce their wages and therefore, their overall tax burden. This allows businesses to invest more in other areas of their operation while still providing benefits to their employees.
The ERTC is a great way for business owners to save money on taxes while also providing important benefits for their employees. This credit can be used to offset payroll taxes, which could help the business significantly reduce its overall tax liability. Additionally, it can provide a monetary incentive for employees by allowing them to keep more of the wages they earn.
For employers, the ERTC offers an easy way to save money on taxes while still providing important benefits and wage increases for their employees. Furthermore, it can be an effective way to attract and retain talent in an increasingly competitive labor market. As such, taking advantage of this credit can provide both financial incentives and benefits that can improve employee retention and satisfaction in the workplace.
Strategies To Maximize Ertc Benefits
Now that we have discussed the financial incentives and benefits of ERTC, let’s look at some strategies to maximize the benefits for employers. To begin with, employers should keep an eye out for changes in the laws that might affect their eligibility for the credit. By staying up-to-date on tax law changes, they can ensure they are taking advantage of all possible deductions and credits. Additionally, employers should review their payroll records to identify employees who worked more than 30 hours per week before Covid-19 pandemic-related layoffs or furloughs began. This will help them determine which employees are eligible for wages paid under the employee retention credit program.
Another strategy owners can use to maximize their ERTC benefits is to ensure they are aware of any other relevant tax credits that may be available to them. By understanding what other tax credits may be available, owners can make sure they are taking full advantage of all available deductions when filing their taxes. Additionally, employers should calculate how much wages qualify for ERTC credit and make sure they are not overpaying their employees or paying more wages than necessary in order to receive a higher employee retention tax credit amount.
Finally, business owners should also make sure that their payroll systems are set up correctly so that all eligible employees receive the correct amount of wages due from the employee retention credit program. This will help them avoid costly mistakes as well as ensure that they get the maximum benefit from this valuable tax credit program. With these strategies in place, employers can maximize their potential savings by taking full advantage of ERTC benefits. The next section will discuss the effectiveness of ERTC versus layoffs and furloughs as a cost saving measure during uncertain times.
Effectiveness Of Ertc Vs Layoffs & Furloughs
The Employee Retention Tax Credit (ERTC) is a tax credit that has been implemented to help businesses save on wages and avoid layoffs and furloughs. It is an incentive for employers to keep their employees on the payroll and reduce their costs. This tax credit can be beneficial for business owners as it can help them with cost savings, hiring, productivity, and employee retention.
Benefit
Disadvantage
Cost Savings
No Guarantee of Retaining Employees
Hiring
Limited Scope of Eligibility
Productivity
Possible Increase in Paperwork
When compared to layoffs and furloughs, the ERTC offers a more positive solution for businesses as they are able to retain their employees while also saving money. Furthermore, it prevents businesses from having to hire new employees after layoffs or furloughs which can be costly in terms of training time and resources. However, this tax credit does not guarantee that all employees will stay employed as the decision to retain or layoff workers ultimately lies with the business owner. Additionally, there are eligibility requirements which limit the scope of who can benefit from this credit. Lastly, implementing ERTCs may require additional paperwork or administrative tasks which could be an extra burden on businesses.
In comparison to layoffs and furloughs, the ERTC provides a viable alternative for business owners looking for cost savings while retaining their current workforce. Businesses should carefully consider whether utilizing the ERTC is worth their time and effort before making any decisions about employee retention or dismissal.
Alternatives To Employee Retention Credits
The effectiveness of ERTC vs layoffs and furloughs is a powerful choice for employers, but there are other alternatives that can be considered. While employee retention tax credits have their advantages, it’s important to know what other options are available to employers when trying to keep their employees on board.
Employers should consider offering their employees incentives such as higher wages or bonuses, as well as providing more flexible work hours and the ability to work from home. These options can help the employer attract new talent while also keeping existing employees engaged and motivated. Additionally, offering employee training programs can increase job satisfaction and help retain existing employees.
Owners may also want to look into tax credits that are available for employee retention. Tax credits can help employers offset some of the costs associated with keeping staff on board, such as payroll taxes, health insurance premiums, and other overhead expenses.
Here are 3 alternatives to Employee Retention Credits:
Higher Wages & Bonuses
Flexible Work Hours & Working From Home
Employee Training Programs
These alternatives offer different ways for employers to invest in their workforce without relying solely on employee retention tax credits. It’s important for business owners to research these options so they can make informed decisions about how best to keep their employees engaged and productive. By doing so, owners can ensure that their businesses remain successful in the long run.
Resources For Learning More About Ertc
Employee Retention Tax Credit (ERTC) has become a crucial tool for small business owners. It provides an incentive to help cover the wages of employees that have been affected by the coronavirus pandemic. For those wanting to learn more about ERTC, there are several resources available.
The Internal Revenue Service (IRS) website is a great place to start. It offers comprehensive information on ERTC and other related tax credits, including details on eligibility, claiming the credit, and more. Additionally, many states provide information on their respective employee retention credits as well.
Small business owners should also talk with their accountant or financial advisor to get further insight into the specifics of their situation and determine if they qualify for ERTC. This will also help them understand how best to maximize the credit’s benefits while minimizing potential risks associated with it. With expert guidance, they can make sure they’re taking full advantage of this important tax credit and making the most of it in these challenging times.
It’s important for small businesses to be informed about available assistance programs like ERTC so that they can take advantage of them during this difficult period in our economy. Business owners should take full advantage of all of the resources available to them when learning more about employee retention credits and how they can benefit from them.
Frequently Asked Questions
How Long Will The Ertc Be In Effect?
The Employee Retention Tax Credit (ERTC) is a powerful tool that businesses can use to help retain their employees during the COVID-19 pandemic. As businesses grapple with finding ways to stay afloat, this tax credit offers a great way to save money and keep employees on payroll. However, many are left wondering how long the ERTC will be in effect.
To illustrate, consider the story of John’s business. John had been struggling to make ends meet since the coronavirus hit his town. He was worried about having to lay off some of his employees and he wasn’t sure what he could do. After doing some research, John discovered the ERTC and was able to use it to keep his staff employed while saving money on taxes:
-John was able to claim up to $5,000 per employee -He received a 50% wage subsidy for salaries up to $10,000 -He got an additional 20% wage subsidy for salaries higher than $10,000 -The tax credit was fully refundable against taxes owed
The ERTC has been extended through June 2021 by Congress and President Biden. This means employers have access to financial relief well into next year. Furthermore, businesses that have not taken advantage of this program are still eligible for retroactive credits for wages paid from March 13th 2020 until June 2021. This provides employers with more time and flexibility when it comes to taking advantage of this great opportunity.
Businesses need all the help they can get right now and the ERTC provides an effective way for them to support their employees while saving money on taxes. It’s an excellent resource that employers should take advantage of while it’s available as it can provide much needed relief during these difficult times.
What Other Tax Credits Can Be Impacted By The Ertc?
When it comes to taxes, there are several credits available to both businesses and individuals that can help reduce the amount of money they owe. The current H2 is asking what other tax credits can be impacted by the Employee Retention Tax Credit (ERTC). To answer this question, let’s look at some of the most common tax credits available and how the ERTC may affect them.
The first type of credit is a child tax credit. This credit helps offset expenses related to taking care of a child or dependent. This includes costs such as tuition, medical bills, and daycare expenses. The ERTC may not directly impact this particular credit but if businesses use the ERTC they may be able to save money that could be used for these types of expenses.
Another type of credit is the Earned Income Tax Credit (EITC). This helps lower-income taxpayers recoup some or all of their taxes paid throughout the year. While the ERTC does not directly affect this credit, businesses who use it may find themselves in a better position financially which could lead to having more disposable income that can go towards taking advantage of this particular credit.
In addition, there are also deductions available for business owners that can help decrease taxable income. These include things like home office deductions and start-up costs deductions. With the ERTC providing additional funds for businesses to use, it may become easier to take advantage of these types of deductions as well as other credits available on federal and state levels.
In terms of tax credits affected by the ERTC:
Child Tax Credit: May benefit indirectly due to increased funds from ERTC
Earned Income Tax Credit: May benefit indirectly due to improved financial position from ERTC usage
Business Deductions: May be easier to take advantage due to funds from ERTC
Taking into account all these different aspects, it’s clear that while not directly affecting certain tax credits, using the Employee Retention Tax Credit can still have an indirect beneficial effect on them through improved financial positioning or added funds that make taking advantage of them easier than before.
Are There Any Restrictions On How The Ertc Can Be Used?
Are there any restrictions on how the ERTC can be used? This is an important question to consider when utilizing this tax credit. It’s important to understand what limitations may apply in order to ensure that you are taking full advantage of it.
The Employee Retention Tax Credit (ERTC) is a refundable tax credit available for employers who have experienced full or partial closure due to COVID-19, or a significant decline in gross receipts. The credit is available from March 13th, 2020 through December 31st, 2021 and is equal to 50% of qualified wages up to $10,000 per employee per year. However, there are certain restrictions that must be met in order to qualify for the ERTC.
For example, employers must have had an average total number of full-time employees greater than 100 during the period beginning February 15th and ending June 30th of 2020 compared to February 15th 2019 through June 30th 2019. Furthermore, businesses cannot receive both the ERTC and other credits like Work Opportunity Tax Credit (WOTC) or Empowerment Zone Tax Credit (EZTC). In addition, employers must file Form 941 each quarter and be current with their payroll taxes. Finally, if an employer receives a PPP loan they may still use the ERTC but not for the same wages used to calculate PPP loan forgiveness.
Clearly, understanding these restrictions is essential for making sure you take full advantage of all available incentives offered by the ERTC program. It’s always best practice to consult with your accountant prior to filing any return related to this tax credit in order to ensure compliance with all applicable requirements.
Does An Employer Have To Provide Proof Of Wages Paid To Qualify For The Ertc?
When it comes to taxes, employers often have to provide proof of wages paid in order to qualify for certain tax credits. This is true for the Employee Retention Tax Credit (ERTC), as well. Employers who are eligible for the ERTC must provide proof of wages paid in order to receive the credit.
The type of evidence an employer needs to provide depends on their size and structure. Generally speaking, large employers must submit wage information along with a copy of their quarterly wage report to the IRS. Smaller businesses may need to show pay statements or payroll records that prove they had employees on payroll during the applicable quarter.
In addition, businesses will also need documentation that demonstrates how much money was spent on qualified wages and health care costs during each quarter. This documentation can come in various forms such as payroll reports and bank statements, depending on the type of expenses incurred. Ultimately, employers must be able to demonstrate that they met all requirements for qualification when submitting their ERTC claim.
Is There A Minimum Amount Of Wages An Employer Must Pay To Qualify For The Ertc?
One of the common questions that employers ask is whether there is a minimum amount of wages they must pay in order to qualify for an employee retention tax credit (ERTC). The answer to this question depends on the specific circumstances, but generally speaking, there are certain wage requirements that must be met in order for an employer to qualify for the ERTC.
First, an employer must have paid wages during a qualified period. Qualified periods can include any period between March 12th and December 31st, 2020. During these periods, employers must pay at least $10,000 in total wages to be eligible for the ERTC. The wages paid during this period must also be reported on Form 941 or Form 944.
In addition to meeting the wage requirements outlined above, employers may also need to meet other qualifications in order to take advantage of the ERTC. For example, employers may need to demonstrate that their business has been negatively impacted by COVID-19 in order to receive the credit. They may also need to provide proof that they have experienced a reduction in gross receipts compared with previous years.
Overall, it’s important for employers to understand all of the necessary requirements before applying for an ERTC. Although there is a minimum amount of wages required in order for an employer to qualify for the ERTC, employers will still need to ensure that they meet all other eligibility criteria as well.
Conclusion
We have just discussed the Employee Retention Tax Credit (ERTC), and now we understand that it will be in effect for a period of time. We also understand what other tax credits can be impacted by the ERTC and the restrictions on how it can be used. Moreover, employers need to provide proof of wages paid and there is a minimum amount of wages an employer must pay to qualify for the ERTC.
Overall, this tax credit is beneficial for employers across many industries. It not only helps them retain their employees, but also saves them money on taxes. As a result, businesses are able to use this extra capital to hire more people and invest in other areas of their operations.
By taking advantage of the ERTC, employers can ensure they are getting the most out of their investments while providing stability and security for their employees during these uncertain times. With this knowledge, businesses can make informed decisions about how best to utilize this tax credit and maximize its potential benefits.
There are multiple and various tax credits that businesses may strongly qualify for. The Employee Retention Tax Credit (ERTC or ERC) is a refundable federal tax credit program. It rewards businesses (and non-profit organizations) who kept employees in 2020 and 2021 during the COVID-19 pandemic. You can claim the ERTC payroll tax credit retroactively, and we should talk about the ERTC and any other possible business tax credits that your business may qualify for.
You can watch one business owner’s results with claiming the employee retention tax credit in this video. Like many businesses who we have helped, it’s alright if you have questions. We’re here to answer them, and you can get the help and support you need to get the maximum legal and ethical Employee Retention Credit refund on your payroll taxes. In addition if you’ve received conflicting advice about whether you qualify, we will explain all the factors besides lost revenue that the IRS has approved. Just connect with us so you can begin your ERTC claim below.
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The Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) was signed into law on March 27, 2020. It included two programs to assist businesses with keeping workers employed: the Payroll Protection Program (PPP) administered by the Small Business Adminstration and Employee Retention Tax Credit (ERTC) administered by the Internal Revenue Service.
PPP funds are distributed based on 2.5 months of payroll and a minimum of 80% of the funds must be used on payroll to be eligible for forgiveness. Additionally, PPP funds are not taxable as revenue and you may still take deductions for the payroll covered by PPP.
ERTC tax credits, however, are credits (or refunds) for a percentage of payroll in each quarter that you qualify. There are specific rules for determining eligibility by quarter, and limiting the dollars that can be claimed for each employee.
Fortunately the short answer is “Yes” . . . you can claim ERTC if you received PPP funds and even had the loans forgiven.
Initially with the CARES Act, employers could choose to apply for PPP or claim ERTC credits, but not both.
PPP loans were easier to apply for and more beneficial than ERTC for most businesses (for reasons we won’t go into here), and most businesses with under 500 employees received forgivable PPP Loans.
On March 11, 2021, The American Rescue Plan Act of 2021 was signed into law and included many modifications and expansions to existing elements of previous stimulus programs.
Noteworthy modifications for business owners included:
Businesses who applied for and received PPP funds could now also claim ERTC credits.
ERTC credits could be retroactively claimed for businesses that qualified in 2020.
ERTC credits were extended through 9/30/21 with lower qualification requirements.
The per-employee cap on qualifying wages increased from $10,000 for all of 2020 to $10,000 per quarter for the first 3 quarters of 2021.
The refundable credit amount increased from 50% of qualifying wages in 2020 to 70% in 2021.
Well, the process unlike the Payroll Protection Program (administered by the Small Business Administration), there is actually no “application process” for the Employee Retention Tax Credits.
You simply claim the ERTC tax credit like you would any other tax credit – by asserting to the IRS that you can legally claim the credit.
When you claim a child tax credit, you do so by asserting this fact on your Form 1040 Personal Income Tax Return.
The difference is that when you claim an ERTC tax credit, you do so on your Form 941 Employer Quarterly Tax Filing.
For prior quarters, you must file an amended form (the Form 941-X) to reduce your current quarter’s tax contribution and request a refund of excess credits (which is highly likely).
Even though you may feel like revenue is back to normal, there are some items you want to consider before passing on this ERTC assessment.
First, even if revenues have returned to “normal” in 2021, you may have qualified in 2020 and you can retroactively claim those credits. That eligibility criteria in 2020 was based on revenue declines from 2019, or if your business was partially or fully closed due to governmental mandate.
Second, while your revenue may have returned to “normal” in Q1 2021, remember that we are comparing your Q1 2021 to Q1 2019. If 2019 was a year of growth for your business, then your revenue levels 2 years ago may have been much less than Q1 2020.
And lastly, if your revenues were down in Q4 2020 by just 20% compared to Q4 2019, then you may also be eligible for Q1 2021. There is a safe harbor provision that few advisors are talking about, and it means that many businesses are qualifying for $7,000 per employee in Q1 2021.
I know, it seems too good to be true, but the government wants to incentivize and reward you for keeping US residents employed and money flowing through our economy as we rebuild bigger and stronger than before.
You are most likely referring to a provision of the CARES Act that allowed employers to defer the deposit and payment of the employer’s share of Social Security taxes. Those deferrals must then be repaid – with at least 50% of the balance due by 12/31/21 and the remaining balance due by 12/31/22.
ERTC credits are NOT a deferral. They are dollar-for-dollar credits against wages and benefits that you’ve paid. Not payroll taxes or income taxes you’ve paid, but actual wages.
These credits can offset future tax contributions or you can receive a refund check – it’s your choice.
And you will NOT have to re-pay these funds if you have the ERTC calculated by experienced tax credit accounting specialists. You will have to document the impacts to your business (unless, of course, you don’t provide adequate documentation in the course of an audit).
Your banker, CPA, or Financial Advisor was probably very helpful when it came to getting your PPP funds because they were effectively signing you to an SBA-guaranteed loan. The SBA paid the bank administrative fees based on the PPP loans they made, and so they were incentivized to educate you about the program and get all your paperwork in order.
Compared to the ERTC, the PPP program was also a rather simple calculation. 2 ½ times your average monthly payroll including health insurance and state unemployment taxes.
From the conversations we’ve had with bankers, they have no interest in involving themselves in your employment tax compliance. For them it is a liability and beyond their scope of services.
Your Payroll Service does an excellent job of executing the fundamentals of paying your employees, paying your employment taxes and filing your quarterly reports.
But computing your ERTC credits requires visibility into your P&L and PPP forgiveness applications. Not only that, but the complex requirements around eligibility and allocating ERTC credits at the employee-level while accounting for annual and quarterly qualifying wage gaps and . . . well, you can probably tell why Payroll Services are not offering to do all of this for you.
The Payroll Services that we’ve worked with so far are happy to provide the payroll registers that we need to perform the allocations. And they are happy to file the Amended Form 941-X with the IRS on our client’s behalf.
But that’s the extent of it.
In fact, most wise Payroll Services are asking clients to sign an indemnification waiver before submitting a Form 941-X because the Payroll Service can take no responsibility for the accuracy of the ERTC credits you are claiming.
For them to involve themselves in the intricacies of this calculation, it is a liability and beyond their scope of services.
Whether your tax accountant is a CPA or EA, he or she most likely only prepares your Federal and State Income Tax Returns. However, ERTC credits are claimed against Employment Taxes on Form 941, and cash advanced through Form 7200.
The complexity of the ERTC program is a beast unto itself and every tax accountant we’ve talked to has said they focus on staying up-to-date on the ever-evolving income tax code, and they can’t now become experts in the ERTC program as well.
If your tax accountant is comfortable determining your eligibility by quarter and year, computing your credits, and preparing contemporaneous documentation to support an IRS audit, then you should certainly let them handle all of this.
If you want a second set of eyes on this, we’re happy to take a look.
Your Bookkeeper should certainly have access to all the information that is needed for an accurate calculation of your legal ERTC claim. They will have your financial reports, payroll registers, and PPP loan forgiveness documents.
The Million Dollar Question is . . . Do They Have The Time?
Do they have the time to dig into the text of American Rescue Plan Act of 2021
And its accompanying referenced laws like: CARES Act, Families First Act, Payroll & Healthcare Enhancement Act, PPP Payroll Flexibility Act and the Consolidated Appropriations Act.
Time to read the IRS Interpretations and FAQ’s? And cross-reference those definitions with that of PPP which was separately defined and dissimilarly interpreted in the Small Business Administration’sBulletins and IFRs?
Do they have the time to ensure accuracy in eligibility determination, maximize your computation and create the supporting documentation you’ll need to support an IRS audit of employer taxes?
So far, we have not found a bookkeeper who is able to take all this on, while handling the day-to-day of bookkeeping. If yours can, then take them up on their offer. We’re happy to take a second look.
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