The employer Retention Tax Credits (ERTCs) are refundable Federal tax credits designed to reward and encourage employers to retain their employees. In order to provide more financial relief to a broader group of employers, the program has been significantly expanded.
Like PPP loans, this credit is based on payroll costs. Unlike PPP loans, this credit is tied to payroll tax filings and, therefore, to your company’s tax returns. As a result, in order to claim this credit properly, amended returns are required, which is unfortunately more complicated than PPP loans. However, we are urging our clients to take advantage of this, as the amount involved is substantial and it is free money, aside from the costs related to preparing the claim and amended returns.
What is the credit amount?
For 2021, an employer can receive 70 percent of the first $10,000 of qualified wages paid per employee in each qualifying quarter, up from 50 percent in 2020.
The possible ERTC is $5,000 per employee for 2020 and $21,000 per employee for 2021.
This is a tax credit—one of the very most beneficial things that our ta
x code has to offer. Although it’s not as valuable as some other tax credits, because a Company has to reduce its payroll tax deductions for the credits, the ERTC certainly puts your Company money ahead.
Who can apply?
In order to qualify for the ERTC, a company must have had a decline in quarterly revenue, been shut down completely or partially due to government orders, or begun a new business with an average annual revenue of less than $1 million.
There are two ways to qualify for 2020:
- During a calendar quarter of 2019, you saw a drop in gross receipts of more than 50% compared to the same quarter in 2018. (The 50 percent test is the trigger for ERTC and you qualify automatically in the following 2020 quarter.)
- Your operations were suspended by a federal, state, or local government order.
There are three ways to qualify for 2021:
- A federal, state, or local authority suspended your operations in part or in full (under this rule, you qualify for ERTC even if you lost no money on those days when you suffered the suspension).
- Your gross receipts in the same quarter of calendar year 2021 and calendar year 2019 are more than 80 percent different.
- If you compare your 2021 calendar quarter to your preceding quarter, your gross receipts are lower than the comparable quarter in 2019.
The government wants to assist small businesses as you can see from the rules. If you qualify, we urge you to apply for it as soon as possible.
Last but not least. It’s not allowed to double dip. ERTC wages are ineligible for PPP, family leave credit, or similar COVID-19 programs. This necessitates careful planning and analysis. This will ensure that credits are combined effectively. We should consult with you before you apply for any PPP2 loan forgiveness if you are considering claiming the ERTC.
If you would like to discuss your ERTC Claim please contact us today!