Are you an employer looking to claim the Employee Retention Tax Credit (ERTC)? Many employers are eligible for this tax credit and it can be a great way to offset payroll costs due to the COVID-19 pandemic. In this article, I will explain who is eligible for ERTC, so that you can make sure your business qualifies. The ERTC was created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES) in 2020. This tax benefit is available to businesses with more than 100 employees if their operations were either fully or partially suspended due to government orders related to COVID-19. The credit also applies if there has been at least a 50% reduction in quarterly receipts compared to 2019’s figures. Smaller businesses with fewer than 100 employees may qualify too if they meet certain criteria set by the IRS.
Overview Of The ERTCAh, employee retention tax credits – the best thing to happen since sliced bread! If you’re one of the lucky few businesses eligible for this incredible incentive, then your life just got a whole lot easier. Not only will you be reaping the benefits from some juicy tax deductions and refunds, but there’s also potential relief if you’ve been forced to reduce wages due to economic hardship. These sweet little treats are perfect for keeping those pesky employees happy so that your business can go on running as usual despite all the chaos going on around us. Now, let’s get down to brass tacks: who exactly is eligible for ERTCs? Well, small-to-medium sized employers with fewer than 500 full-time equivalent workers may qualify for up to $5,000 per employee in refundable payroll taxes when they meet certain requirements regarding their workforce and wages. So don’t delay – make sure you check out all the details today because these awesome incentives won’t last forever!
Eligibility Criteria For Businesses With More Than 100 EmployeesBusinesses with more than 100 employees are eligible for the employee retention tax credit if they experience a full or partial suspension of their operations due to orders from an appropriate governmental authority that limits commerce, travel or group meetings due to COVID-19. In order for employers to qualify for this tax credit, they must have experienced either a significant decline in gross receipts during the calendar quarter compared to the same 2019 quarter OR wages paid after March 12th, 2020 and before January 1st, 2021 exceed 80% of the taxable wages paid during all four quarters of 2019. Additionally:
- Employers cannot receive both Paycheck Protection Program (PPP) loans and Employee Retention Credit payments
- Qualifying Wages must be less than $10K/employee/quarter
- Taxable Wages include salaries, bonuses and health benefits provided by employers
- The Employee Retention Credit applies only to businesses closed partially or fully as a result of government orders related to COVID-19
Eligibility Criteria For Businesses With Fewer Than 100 EmployeesBusinesses with fewer than 100 employees may be eligible for the employee retention tax credit. To qualify, employers must have experienced either a full or partial suspension of their business operations due to government orders related to COVID-19, or an overall decline in gross receipts by more than 50% from the same quarter in 2019. The credit is also available if there has been no significant decline in gross receipts but certain expenses such as payroll costs are still high relative to prior quarters. Employers who meet these criteria are eligible for a refundable tax credit of up to $5,000 per employee each quarter. This amount can be used to offset federal employment taxes and other applicable payroll taxes associated with wages paid during the period of economic hardship. Business owners should familiarize themselves with all relevant tax implications prior to filing any claims for this benefit.
How To Claim The ERTCAn example of an employee retention tax credit may be a small business that employs 50 people. They had to furlough 25 employees due to the COVID-19 pandemic, and are now eligible for up to $5,000 per qualified employee who is retained on payroll through December 31st 2020. To claim the ERTC, employers must:
- Determine their gross receipts from 2019 compared to 2020
- Calculate wage qualifications for each employee
- Estimate the amount of wages paid in 2020 as well as any alternative uses such as health benefits or group life insurance premiums
- File Form 941 quarterly and Form 7200 with their income tax return for the last quarter of 2020