HAS YOUR BUSINESS TAKEN ADVANTAGE OF THE EMPLOYEE RETENTION TAX CREDIT?

The coronavirus pandemic has impacted many businesses in all sectors of the economy. Non-essential businesses shut down, and those that could not carry-on operations via telework options were forced to lay off employees. Demand for certain products and services declined, while essential products experienced shortages in supplies. Supply chains were disrupted due to travel bans, scarcity of raw materials, etc. To ease the burden, the federal government enacted programs such as the ertc tax credit to keep businesses and workers from total collapse. Have you talked to a tax professional about how you can take advantage of the employee retention tax credit?

What is Employee Tax Retention Tax Credit?

The ertc tax credit is an IRS tax credit taken on a businesses’ quarterly payroll tax return designed to help small businesses retain their employees during the difficulties of COVID-19 rather than lay them off. The credit refunds payroll costs already spent.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the ertc tax credit in March 2020. It provides a per-employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid to employees.

Initially, the CARES Act did not allow businesses that received Paycheck Protection Program (PPP) loans to claim the ertc tax credit. However, the Consolidated Appropriations Act, 2021 retroactively removed the limitation so employers that had applied for or received PPP loans could still get the ertc tax credit.

Although the American Rescue Plan Act, originally provided that the ertc tax credit would go through Dec. 31, 2021, the passing of the infrastructure legislation includes a provision that ended the ERC for most businesses after Sept. 30, 2021. Recovery Startup Businesses remain eligible for ERTC through the end of the year. 

A Recovery Startup Business must have started after Feb.15, 2020, and had an average of no more than $1 million in gross receipts. They could be eligible to take a credit of up to $50,000 for the third and fourth quarters of 2021. 

Consult our tax professionals today to be sure you don’t miss this limited time ertc tax credit opportunity.

Are all Employers Eligible for the Employee Retention Tax Credit?

To qualify as an eligible employer, the business (including tax-exempt organizations) must:

  1. Actively engage in a trade or business during the calendar year of 2020 or 2021 and
  2. Have experienced a partial or total government-ordered shutdown during the calendar quarter due to COVID- OR
  3. Have experienced a gross receipt decline above 20% in 2020 or 2021

Some businesses might not qualify for the ertc tax credit either because they did not experience a disruption or shut down or they were too large. Other businesses may have shut down but kept their employees working and revenues coming in through telework, so the decline in gross revenues was not enough to be eligible for the ertc tax credit.

To determine whether you are eligible for the ertc tax credit, you would be well advised to engage the services our tax credit filing professionals.

How is the ertc tax credit calculated?

The number of average full-time employees and eligible wages are primary components used to calculate the ertc tax credit. Eligible wages are determined based on whether the employer is small or large. In 2020, an employer is a small employer if they have 100 or fewer average full-time employees. Whereas in 2021, an employer was considered small if they had 500 or fewer average full-time employees. 

Eligible wages include all wages and health insurance benefits paid to an employee during the appropriate eligibility period. The Cares Act excludes:

  • Wages that were included as part of the credit for paid family and medical leave 
  • Wages paid to related individuals
  • Wages that the employer received a tax credit for under the Families First Coronavirus Response Act 
  • Wages paid to employees under the Work Opportunity Tax Credit 
  • Wages the employer receive a tax credit for under the Indian Employment Credit

Eligible employers can claim a tax credit, which effectively reduces the payroll tax paid as follows:

For 2021:  70% of the qualified wages they pay to employees during the 2021 eligibility period. Qualified wages are limited per employee per quarter during the eligibility period. 

For 2020:  50% of the qualified wages they pay to employees during the eligibility period. Qualified wages are limited per employee per quarter during the eligibility period. 

Calculating the ertc tax credit involves researching eligibility periods and specific limitations set by the IRS. Such calculations are generally best left to companies like ours that specialize in tax credit filings.

Benefits of claiming the ertc tax credit

Just as stimulus checks to individual Americans helped many get through these lean years of COVID, ertc tax credits can help many small to mid-sized businesses recoup losses from pandemic shutdowns or reduction in revenues. 

  • In our opinion, the ertc tax credit is one of the most notable credits available to business owners. It can deliver thousands of dollars in credits per employee with qualified wages. 

  • The ertc tax credit is not taxable income. It is a fully refundable payroll tax credit. Although it’s claimed against payroll, the amount of the ertc could exceed the amount of payroll taxes due, which means more money in your pocket.

  • Even though the ertc tax credit expired at the end of 2021, our tax pros can still help businesses claim the credit. Amended Payroll tax returns can be filed up to three years from the original filing date.

How to Apply for the ertc

To claim the new ertc tax credit, eligible employers should work with a tax professional to calculate and report total qualified wages and related health insurance costs for each quarter on their quarterly employment tax returns. The ertc tax credit is taken against the employer’s share of Social Security tax.

Advance ERTC Payments

Employers can access the ertc tax credit for the 1st and 2nd quarters of 2021 before filing their employment tax returns by reducing employment tax deposits. Small employers can request advance payment of the credit after reducing deposits. 

Several limitations apply to advance ertc tax credit payments and ertc tax credit calculation mistakes can result in a delay in processing, which means it may take longer to get the advanced payment.  Using a reputable ertc tax credit filing professional can help avoid errors. If you need more information on what is employee tax retention tax credit, how to apply for ertc, and calculate the ertc tax credit, contact us today.