How to Claim the Employee Retention Tax Credit: If you’re a business owner, you may be eligible for the Employee Retention Tax Credit (ERTC), a refundable tax credit that helps businesses that were adversely affected by the COVID-19 pandemic. The ERTC is designed to encourage employers to keep their employees on the payroll, even if their business is struggling. In this article, we’ll explain how to claim the Employee Retention Tax Credit and provide all the information you need to take advantage of this program.
Introduction to the Employee Retention Tax Credit
The Employee Retention Tax Credit is a refundable tax credit that was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The credit was later expanded and extended by the Consolidated Appropriations Act in December 2020 and the American Rescue Plan Act in March 2021.
Who is Eligible for the Employee Retention Tax Credit
To be eligible for the ERTC, you must meet the following criteria:
- Your business must have been fully or partially suspended due to a government order related to COVID-19.
- Your business must have experienced a significant decline in gross receipts.
- You cannot have received a Paycheck Protection Program (PPP) loan or other Small Business Administration (SBA) assistance.
How to Calculate the Employee Retention Tax Credit
The ERTC is worth up to 70% of an employee’s qualified wages, up to a maximum of $10,000 per employee per quarter. Qualified wages are wages and compensation paid to an employee during a calendar quarter while the business was eligible for the credit. The credit can be claimed for wages paid from March 13, 2020, through December 31, 2021.
How to Claim the Employee Retention Tax Credit
To claim the ERTC, you must report it on your quarterly employment tax return, Form 941. You can also request an advance of the credit by filing Form 7200. The credit will be applied against the employer’s share of social security taxes.
Frequently Asked Questions about the Employee Retention Tax Credit
- What is the deadline for claiming the Employee Retention Tax Credit? The deadline for claiming the ERTC is the same as the deadline for filing your quarterly employment tax return, Form 941. You can claim the credit on your second, third, and fourth quarter returns in 2021.
- Can I claim the Employee Retention Tax Credit if I received a PPP loan? No, you cannot claim the ERTC if you received a PPP loan. However, you may be able to claim the credit for wages paid that were not covered by the PPP loan.
- How do I determine if my business had a significant decline in gross receipts? You must compare your gross receipts for a calendar quarter in 2020 to the same calendar quarter in 2019. If your gross receipts are less than 50% of the gross receipts for the same quarter in the previous year, you are eligible for the ERTC.
- Can I claim the ERTC for wages paid to myself as a business owner? No, you cannot claim the ERTC for wages paid to yourself as a business owner.
- Can I claim the ERTC for wages paid to furloughed employees? Yes, you can claim the ERTC for wages paid to furloughed employees as long as they were not performing any services for the business during the furlough period.
Summary
The Employee Retention Tax Credit is a valuable program that can help businesses that have been negatively impacted by the COVID-19 pandemic. If you’re eligible for the ERTC, it’s important to take advantage of this credit to help support your business and retain your employees. Remember, the ERTC is a refundable tax credit, which means that if the credit exceeds the employer’s share of social security taxes for a calendar quarter, the excess credit will be refunded to the employer.
