What is ERTC Tax Credit?

January 20, 2023

The Employee Retention Tax Credit, or ERTC, is a provision in the CARES Act (Coronavirus Aid, Relief, and Economic Security Act).

This tax credit is specifically available to companies that were impacted during the pandemic between March and December of 2020.

However, the ERTC deadline was extended to include businesses that were impacted in 2021 as well.

The ERTC applies for any business or organization that had a significant loss in gross revenue due to the Coronavirus pandemic.

It is a fully refundable credit that's equal to 50% of qualified wages for full-time employees for 2020 and up to 70% of qualified wages per quarter (for three quarters) for 2021.

How the Employee Retention Tax Credit Works (ERTC)

As part of the CARES act, the Employee Retention Tax Credit (ERTC) is a relief provision that was made to encourage businesses to keep employees on staff.

During the pandemic of 2020, the initial version of this tax credit offered up to $10,000 in refunds per qualified employee.

While the maximum amount that could be claimed is $5,000, the credit applies for 50% of the wages per employee.

It breaks down like this:

The 2020 Credit: If the employee's wages were $10,000 or more, then the business could qualify for $5,000 in refund credits for the year of 2020.

The 2021 Credit: For wages paid any time in 2021 and before October 1st of 2021, the ERTC applies to 70% of wages of up to $10,000 per quarter, or $7,000 per employee per quarter, for three quarters. This means that your company could receive a max of $21,000 per qualifying employee through Sept 30, 2021.

The total combined maximum credit for both 2020 and 2021 can be up to $26,000 per employee.

What businesses are eligible to receive the Employee Retention Tax Credit?

Eligibility requirements can differ based on the year.

Eligibility Requirements for 2020:

Businesses that were operating prior to March of 2020 that were affected with a full or partial suspension due to COVID-19 may qualify if gross receipts declined by 50% of the gross receipts for the same quarter in 2019. If the business did not exist in 2019, it could use a comparison to a prior quarter in 2020 for the credit.

Eligibility Requirements for 2021:

In January of 2021, the credit became available to businesses that were fully or partially suspended due to COVID-19, where gross receipts were reduced by at least 20% for the same quarter in 2019. If the business didn't exist in 2019, then it could compare against the quarter in 2020.

(The IRS provides a ERTC comparison chart to make the changes a bit easier to understand)

How much can you claim from ERTC Tax Credit?

In total, you could claim $5,000 per employee for 2020 and $21,000 per employee for 2021.

However, the calculations may not be so simple.

Here's why:

The ERTC does not stack with other tax programs, including the Families First Coronavirus Relief Act (FFCRA).

Additionally, for any employees with which you used in a Paycheck Protection Program (PPP) loan, they may not be eligible for the ERTC program.

There are a number of qualifications that must be met and the right deductions must be included so as to not get denied or in trouble when filing these claims.

Another common mistake is that a majority owner of the business and any family members related to the majority owner(s) must not be included in the Employee Retention Credit calculations. These people do not qualify, as per IRS regulation.

How to claim the Employee Retention Tax Credit

First, make sure your business meets the eligibility criteria for the ERTC. You must have experienced a significant decline in gross receipts or have your operations fully or partially suspended due to a government order related to COVID-19. The employee count also affects eligibility.

he ERTC is calculated as a percentage of qualified wages paid to employees. For 2020, the credit rate is 50%, while for 2021, it is 70%. Keep in mind that there are wage caps in place for each year.

In 2020, the maximum amount of qualified wages per employee is $7,000 for the entire year, while in 2021, it's $10,000 per quarter.

Claiming the ERTC can be a bit of a process, especially if you've benefitted from the PPP. It complicated things a little bit more to make sure it's accurate.

If your filing is inaccurate, it may delay or prevent you from receiving the ERTC, so it's better to work with professionals to make sure it gets done accurately.

This is something we can help you with!

How long does it take to receive your ERTC payments?

In a nutshell, the time it takes to receive your ERTC payments depends on several factors, such as the IRS's processing times, potential delays, and whether you're requesting an advance payment or not.

So, while it's tough to pinpoint an exact timeline, rest assured that once you've submitted the necessary forms, you're well on your way to obtaining the financial relief your business needs during these challenging times.

Typically, the IRS issues refunds within 4-6 weeks after they've processed your filing.

However, it's essential to remember that this timeline might vary, especially during peak filing periods or if there are any hiccups in the process.

Want to find out if you qualify, or need assistance filing?

If it sounds like your business qualifies for the ERTC for either 2020 or 2021...

Then it might be easier to work with someone that can help you run the calculations and file correctly, making it far easier for you to receive refunds that are due to you.

The ERTC Tax Assistance was specifically created for that purpose --

To make it simpler and easier to apply for and receive your tax credits, helping your business continue to grow and recover from the pandemic.