The Employee Retention Tax Credit (ERTC) is a lifesaver for many businesses surviving the COVID-19 pandemic.
This tax incentive is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020.
The ERTC is available to eligible employers to claim for employee wages paid between March 12, 2020 and January 1, 2021. Making it one of the most effective ways for businesses to save money and keep their employees.
In order to be eligible for the ERTC, employers have to meet certain criteria:
First, they must have experienced either a full or partial shutdown due to a COVID-19-related mandate.
They must have experienced a significant decrease in gross receipts compared to the same quarter in the previous year.
If a business is eligible for ERTC, employers could receive a tax credit equal to 50% of the qualified wages paid. With a maximum credit of $5,000 per employee per year.
To calculate the ERTC, first determine the number of eligible employees and the total amount of qualifying wages paid to those employees during the relevant calendar quarter.
Qualifying wages are capped at $10,000 per employee for all quarters, with only 50% of those wages counting towards the credit.
For example, An employer has 10 eligible employees and pays each employee $10,000 in qualifying wages during a quarter. the employer is entitled to a credit of $50,000 ($10,000 x 10 employees x 50%).
The Employee Retention Credit provides financial support to businesses during the COVID-19 pandemic.
This credit is available for most businesses until September 30, 2021, with a deadline of December 31, 2021 for certain businesses to pay qualified wages.
This means that businesses have the opportunity to claim the credit as a tax return for qualified wages and certain health insurance costs paid to employees.
However, the opportunity to claim the retention credit retroactively is still available for businesses. The deadline for having filed amended returns for Q2, Q3, and Q4 of 2020 is April 15, 2024.
The deadline for for all 2021 quarters is April 15, 2025.
This extended timeline allows businesses to claim the ERTC tax return if they did not do so initially, provided they meet the eligibility criteria.
The Inland Revenue Service (IRS) has provided guidance on how businesses can claim the ERTC retroactively in Notice 2021-20 on its website.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the eligibility criteria to include more businesses.
This broader eligibility will help more businesses access the ERTC credit, which can offset the costs of retaining employees.
Additionally, the CARES act enables businesses to carry forward any unused employee retention credits from 2020 into 2021.
The goal of these changes is to every small business in keeping their doors open and their employees on their payroll, despite the ongoing challenges posed by the pandemic.
The initial step in the ERTC tax credit application process is to understand its qualifications.
The next step is to file the amended payroll tax return.
For businesses that file quarterly, use Form 941-X, while those that file annually should use Form 944-X.
The process of filing amended employment tax returns can be complex. Here's how to easily apply for the ERTC tax credit after 2022:
To apply for the Employee Retention Credit (ERTC), you need to provide the following basic information about your business: