To help small companies weather the financial storm of the pandemic, Congress established the ERTC in March 2020. The Employee Retention Tax Credit was designed to help small businesses recover from lost revenue and wages paid to employees who were not allowed to report to work due to COVID-19 restrictions. Since then, two extensions have been made to the ERTC, allowing more financially shaky businesses to benefit from its lower federal tax rate.
Originally intended to cease on January 1, 2022, the ERTC has its final claim date retrospectively moved forward to October 1, 2021 according to the 2021 Infrastructure Bill. Even if you have claimed your 2019 business taxes without taking the credit, you may file an amended return to take the credit.
Exactly what is the Credit for Retaining Employees?
Companies that experienced revenue losses in 2020 and 2021 as a result of COVID-19 may be eligible for tax assistance in the form of an Employee Retention Credit (ERTC). The ERTC is a program that offers financial incentives to companies of all sizes that agree to keep their staff on the payroll during the economic downturn.
If your business qualifies, you might get up to $7,000 per employee every quarter during the first three-fourths of 2021. That adds up to $21,000 per employee. The employee may get a tax credit of $5,000 per worker for the whole year of 2020.
Due to the ERTC’s evolution, keeping track of its current status might be difficult. The ERTC was added as a method of providing assistance to companies financially whenever the Coronavirus Aid as well as the CARES Act was enacted in March of 2020. However, only a small subset of businesses were eligible to utilize the ERTC since the original measure limited them to opting for either having a PPP loan forgiven or taking the ERTC.
In December 2020 and March 2021, Congress updated the ERTC to allow additional corporations to use it. This may seem confusing with the extended dates and need to file tax amendment forms. However, your business tax professional familiar with the 941-x instructions will know how to assist you in filing for the credit.
Which businesses are eligible for the ERTC?
Only a select group of enterprises are eligible for funding from the ERTC, which was created to assist those with lower revenues as a result of the pandemic and ensuing business closures mandated by local and government ordinances. Private businesses may participate if they fulfill one of many conditions.
- A local government has mandated that you close all or part of your firm in 2020 or 2021.
- For only one quarter in 2020, your total sales were 50 percent lower than they were for the same period in 2019.
- Your quarterly gross revenues for 2021 were 20% lower than the same period in 2019.
If your firm did not exist in 2019, you may still apply for the ERTC by using a 2020 fiscal quarter as evidence of a decline in revenues between that year and the next. In particular, governmental agencies and individual proprietorships are ineligible for ERTC funding. Click here to read what the IRS defines as a sole proprietorship. However, if you’re a sole proprietor who has one or more individuals on your payroll, you may be eligible for the ERTC.
Who among your staff is included in the calculation?
Businesses with less than 100 full-time (https://en.wikipedia.org/wiki/Full-time_job) workers may rely on all of their employees, regardless of whether or not they are really performing service during the eligible period. Only full-time workers who are receiving pay but not delivering service owing to shutdowns and/or a decrease in gross revenues are included.
Both the Employee Retention Tax Credit as well as the WOTC cannot be claimed for the same employee during the same tax year, and neither can the ERTC wage credit nor the FMLA employer wage credit be claimed for the same earnings during the same tax year. This means if you’re taking an ERTC for your employee, you cannot also claim a WOTC credit for that same employee. In addition, if you claim an ERTC credit for an employee, you cannot also claim an FMLA credit for that same employee. You may claim one or the other, only.