Everything You Need to Know About the ERTC Tax Credit
If you are like most people, you have heard of the ERTC tax credit, yet you might not understand what it is and why it is so important. Instead of searching the web for “what is employee retention tax credit”, continue reading below.
Let’s take a look at what the ERTC tax credit is all about and how it can help your business survive throughout the remainder of the coronavirus pandemic.
What is Employee Retention Tax Credit?
ERTC is the acronym used to refer to the Employee Retention Tax Credit. This tax credit was included as a provision within the much-discussed CARES Act. CARES is short for Coronavirus Aid, Relief, and Economic Security.
The purpose of the CARES Act was to make it easier for employers to retain employees on payroll amidst the economic recession caused by the coronavirus pandemic. ERTC is a 100% refundable credit that equates to 50% of wages that qualify, up to a cap of $10,000 for each employee.
How to Apply for ERTC
Business owners can retroactively claim the ERTC credit by filing Form 941-X, also referred to as the Adjusted Employer’s Quarterly Federal Tax Return. The IRS permits a period of upwards of three years from the first date of filing for an employer that filed the form to amend prior filings. Employers can also claim the ERTC credit as an advance with the use of Form 7200, also known as the Advance Payment of Employer Credits Due to COVID-19.
Claiming the ERTC requires that the employer reports the aggregate qualified wages including related credits for each financial quarter. Such federal returns are completed with the Form 941 referenced above. This filing reports the business’ Payroll including Medicare taxes and Social Security taxes withheld from worker paychecks. Furthermore, the IRS also requires that the employer’s portion of Medicare taxes and Social Security taxes are reported as well.
Employers eligible for the ERTC credit should anticipate receiving it so the funds that would otherwise be withheld to cover workers’ wages can be used for the betterment of the company. It is also possible to request advance payment.
The Issue of Qualified Wages
The IRS notice named 2021-20 includes more than half a dozen examples that highlight scenarios of how employers that took out a PPP loan affect the specific wages eligible for the ERTC. The number of eligible wages primarily hinges on how qualified wages were presented on the PPP application for loan forgiveness. Qualified wages in payroll costs already reported to the IRS through the forgiveness application have the potential to be considered in certain situations.
As an example, if more expenses than absolutely necessary were required to trigger loan forgiveness, those qualified wages within reported payroll costs will be considered. In such an instance, the IRS will resort to the minimum wage cost required when combined with additional expenses with the overarching aim of forgiving the loan. It must be noted the IRS insists expenses included in PPP forgiveness not identified within the application for loan forgiveness will not be considered retroactively. Therefore, expenses considered to be eligible, including those for operations, rent, utilities and other non-payroll costs must be added to the application for PPP loan forgiveness to max out the wages that qualify for ERTC.
What is the ERTC Cost?
Employers eligible for the credit can obtain a credit that equals 70% of qualifying wages in a financial quarter. The ERTC cannot surpass $10,000 in a single financial quarter. This means a business is permitted a maximum of a $7,000 credit for each employee in a single financial quarter during which eligible compensation is paid. This figure is reached by multiplying the $10,000 maximum by the aforementioned 70%.
What is the ERTC Timeframe?
Mail the paper ERTC return and it might take upwards of 6-8 months for the IRS to process the request. It must be noted because you have to amend your payroll report submitted to the IRS, it might take between a six to eight months for the refund check to be cut.
When in Doubt, Contact Us!
If you would like a concrete timeframe for the issuance of your ERTC tax credit refund, do not hesitate to reach out to us at www.ertcfiling.com/. You can reach our phone support line by dialing (888) 678-4269.