The Employee Retention Tax Credit (ERTC) was introduced in 2020 as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. It provides a refundable tax credit to help employers cover wages paid to employees after March 12, 2020. This article will provide an overview of when the ERTC expires and what steps businesses should take now for maximum benefit from this program. The ERTC is designed to allow eligible employers to receive up to $5,000 per employee per calendar quarter between March 13th, 2020 and December 31st, 2021. Employers must meet certain criteria in order to qualify for the credit; however, it can be a great way for businesses affected by COVID-19 to recoup some costs associated with payroll expenses. With that said, it’s important for businesses to understand when the ERTC will expire so they can maximize their savings before its too late.
Overview Of The ERTCThe Employee Retention Tax Credit (ERTC) provides tax benefits to employers who are affected by the coronavirus pandemic. It’s a refundable credit that’s available for qualified wages paid between March 13, 2020 and December 31, 2021. Businesses of all sizes may be eligible for this credit if their operations were fully or partially suspended due to government orders related to COVID-19, or if they experienced a significant decline in gross receipts compared to the same calendar quarter in 2019. Eligible employers can claim up to 50% of qualified wages, with an upper limit of $10,000 per employee on an annual basis. The ERTC is applied against certain employment taxes on a quarterly basis, which allows businesses to receive quick access to funds during these uncertain times. Businesses should consult with their legal team and financial advisors regarding eligibility requirements and other details related to claiming the credit.
Eligibility RequirementsThe Employee Retention Tax Credit (ERTC) is a beneficial program for employers, allowing them to claim a credit against certain employment taxes equal to 50% of qualified wages paid to employees. To be eligible for the ERTC, employers must meet specific criteria related to their operation and employee compensation:
- The employer’s business operations were partially or fully suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings; OR
- Gross receipts in 2020 declined by more than 50 percent compared with 2019 gross receipts; AND
- Qualifying wages are no more than $10,000 per employee over all calendar quarters in the applicable tax year; AND
- The employer does not receive any other credits under section 3111(a), 3121(l), or 3221(e).
Maximum Credit AmountThe Employee Retention Tax Credit (ERTC) is an attractive tax incentive for businesses hit hard by the economic consequences of the COVID-19 pandemic. It provides a credit against certain wage costs for employers that experience reduced operations or gross receipts in 2020 due to the pandemic. But with all good things, there’s a time limit: when does ERTC expire? Fortunately, the answer may be less definitive than expected. The expiration date largely depends on the individual circumstances related to each employer’s business activity and operation during 2021. For example, employers whose gross receipts are still below pre-pandemic levels can apply for ERTC through June 30th, 2021; however, they may qualify beyond this date if their revenue remains depressed into 2022. On the other hand, those employers who have fully recovered from losses incurred as a result of COVID-19 will no longer be eligible after December 31st 2021. Ultimately, it comes down to how much your business has been impacted by the pandemic – and whether you’ve been able to recover before year end.
When Does The ERTC Expire?After determining the maximum credit amount, it is important to understand when the Employee Retention Tax Credit (ERTC) expires. The ERTC was introduced as part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which was enacted in March 2020. Therefore, it is set to expire on December 31st, 2020 unless Congress extends its expiration date. Businesses should leverage this tax credit opportunity by utilizing various saving and tax strategies before the expiration date arrives. This includes taking advantage of wage expenses for employees who are not working due to COVID-19 related circumstances such as reduced customer demand or governmental orders that limit operations. It is also important for businesses to retain their wages at a certain level relative to 2019 levels in order to be eligible for the full credit during 2020. Here are several strategies companies can use:
- Create an accurate record keeping system that tracks employee hours worked throughout 2020;
- Utilize payroll services if they have access to them;
- Calculate total wages paid between January 1st – June 30th compared with July 1st – December 31st to ensure qualified wages remain consistent year over year;
- Take into account different state regulations regarding taxes and credits so organizations can maximize their savings opportunities.