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 ERTC
Ah, 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 Employees
Businesses 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
It is important for businesses to review these criteria carefully in order to determine eligibility for the employee retention tax credit and understand which activities will count towards qualifying wages.
Business owners should consult with their financial advisors if they have any additional questions about their potential eligibility.
Eligibility Criteria For Businesses With Fewer Than 100 Employees
Businesses 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 ERTC
An 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
The employer can then apply for a refundable tax credit against their employment taxes equal to 70% of qualified wages they paid in 2020.
This includes amounts paid during any period when operations were partially or fully suspended due to orders related to COVID-19.
Employers should also keep good records of all calculations and documents related to claiming the ERTC so that it can be verified by the IRS if necessary.
It’s important for businesses seeking relief from this tax credit program to ensure compliance with wage qualification rules and accurately report all applicable information when filing forms.
Record-Keeping Requirements For Claiming The ERTC
In order to claim the Employee Retention Tax Credit (ERTC), taxpayers must comply with certain record-keeping requirements. This includes maintaining records of wages, hours worked and other relevant information for each employee eligible for the credit. These records should include documents such as IRS Forms 941, W-2s and 1099s that reflect wages paid during the year.
Additionally, employers should also retain any other supporting documents related to their ERTC eligibility and calculations.
Taxpayers are also obligated to track wage limits in order to ensure they remain compliant with the regulations set forth by the Internal Revenue Service (IRS). The maximum amount of allowable wages per employee is $10,000 on a quarterly basis or $45,000 over an entire calendar year period.
Businesses need to monitor these amounts closely when claiming this tax credit so as not to exceed either limit which could potentially result in penalty fees from the IRS. It is important for employers to keep thorough records of payroll payments throughout the year in order to maintain compliance with regard to wage limits required by the ERTC program.
Employers who fail to adhere to these guidelines may face monetary penalties from federal agencies or be barred from participating in future ERTC programs.
Frequently Asked Questions
How Long Is The ERTC Available?
The Employee Retention Tax Credit (ERTC) is available for businesses that experienced a full or partial closure due to COVID-19, or saw a significant decline in gross receipts compared to the same quarter in 2019.
The tax credit can be claimed for wages paid from March 13, 2020 through December 31, 2020 and provides immediate relief to employers by offsetting payroll taxes up to 50% of qualified wages per employee.
Eligibility criteria and tax implications must be considered when claiming this type of benefit; however, it’s an excellent option for those affected by the pandemic who are looking for financial help with their business operations.
Is The ERTC Refundable Or Can Only Be Used As A Tax Credit?
The Employee Retention Tax Credit (ERTC) is a valuable tool for businesses eligible to receive it, offering a reprieve of sorts from the taxable income they owe.
But the question remains: Is ERTC refundable or can only be used as a tax credit? The answer depends on your eligibility criteria and taxable income.
As a general rule, if an employer’s revenue has dropped due to COVID-19, then the ERTC is usually available in either form; however, there are some nuances that require closer examination by an experienced tax credit analyst.
So don’t cast off this silver lining just yet – with the right guidance you could find yourself with more money back in your pocket!
Is The ERTC Available To Non-Profits?
The Employee Retention Tax Credit (ERTC) is available to non-profits, provided they meet the eligibility criteria.
For example, a non-profit organization must have been operational before March 12th, 2020 and have had either full or partial suspension of business operations due to government orders limiting commerce or travel related to COVID-19.
Additionally, the average number of employees of the non-profit during 2019 must not exceed 500 full time equivalent employees.
Non-profits that qualify may claim up to 50% of qualified wages paid after March 12th, 2020 and before January 1st, 2021 for activities such as employee salary payments or health care benefits.
Can The Ertc Be Used To Retain Employees On A Part-Time Basis?
The Employee Retention Tax Credit (ERTC) can be used to retain employees on a part-time basis, so long as they meet the eligibility requirements.
For businesses to qualify for the ERTC, their gross receipts must have decreased by 50% or more in any given quarter of 2020 compared to 2019.
The credit is calculated based on wages paid up to $10,000 per employee and covers all employees regardless of full-time or part-time status.
This tax credit has been an important tool for businesses struggling due to the economic impact caused by COVID-19, providing relief while helping employers keep their vital staff members employed.
Is There A Minimum Or Maximum Amount That Can Be Claimed As Part Of The ERTC?
The Employee Retention Tax Credit (ERTC) proves to be an invaluable resource for businesses looking to retain their employees, with no minimum or maximum amount that can be claimed.
With the alternative uses of this tax credit, businesses have more flexibility in how they choose to use it – whether that includes wage levels or other incentives.
As a tax credit analyst, I am always pleased when I hear about employers utilizing this unique resource and its potential impact on our workforce.
Conclusion
The employee retention tax credit (ERTC) is a valuable tool for businesses of all sizes. Companies should carefully consider their eligibility and the available amounts before determining if they would benefit from this tax incentive.
Businesses that are eligible can claim up to $5,000 per employee for 2020 and 2021; however, it’s important to note that the ERTC is not refundable or available to non-profits. Additionally, employers may be able to retain part-time employees with this tax credit as long as they meet certain criteria.
In conclusion, while businesses need to do their due diligence when considering the ERTC, its potential rewards could be well worth the effort – like an oasis in a desert of taxes.
