Who Is Eligible for the Employee Retention Tax Credit? The Employee Retention Tax Credit (ERTC) is a provision under the CARES Act that provides tax credits to eligible employers who have been adversely affected by the COVID-19 pandemic. The ERTC is designed to help employers retain their employees and keep their businesses afloat during these difficult times. In this article, we will discuss the eligibility requirements for the ERTC and how it can benefit your business.
What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit is a refundable tax credit that is available to eligible employers. The credit is equal to 70% of the qualified wages paid to employees, up to a maximum of $7,000 per employee per quarter. This means that eligible employers can receive up to $14,000 per employee in tax credits for the first two quarters of 2021.
Who is eligible for the Employee Retention Tax Credit?
To be eligible for the Employee Retention Tax Credit, employers must meet the following criteria:
- The employer must have experienced a significant decline in gross receipts. This is defined as a decline of 20% or more in gross receipts for the same calendar quarter in 2019.
- The employer must have had a full or partial suspension of operations due to a government order related to COVID-19.
- For 2021, the credit is also available to employers who have experienced a significant decline in gross receipts for the first two quarters of the year, regardless of whether they had a full or partial suspension of operations.
What are qualified wages?
Qualified wages are wages paid to employees during the period of time that the employer is eligible for the credit. For 2021, qualified wages include:
- For employers with 500 or fewer employees: all wages paid to employees during the period of time that the employer is eligible for the credit.
- For employers with more than 500 employees: wages paid to employees who are not providing services during the period of time that the employer is eligible for the credit.
How can employers claim the Employee Retention Tax Credit?
Employers can claim the Employee Retention Tax Credit by filing Form 941, Employer’s Quarterly Federal Tax Return, with the IRS. The credit is applied against the employer’s share of social security tax and any excess credit is refundable.
How can the Employee Retention Tax Credit benefit my business?
The Employee Retention Tax Credit can provide a significant financial benefit to eligible employers. For example, a business that has 10 employees and is eligible for the credit for both the first and second quarters of 2021 could receive up to $280,000 in tax credits.
Summary
The Employee Retention Tax Credit is a valuable provision under the CARES Act that can provide a lifeline to businesses that have been adversely affected by the COVID-19 pandemic. By understanding the eligibility requirements and how to claim the credit, eligible employers can receive significant financial relief and retain their valuable employees. If you believe that your business may be eligible for the Employee Retention Tax Credit, we recommend that you consult with a tax professional to discuss your options.
FAQs:
What is the maximum amount of tax credit that an employer can receive under the Employee Retention Tax Credit? The maximum amount of tax credit that an employer can receive under the Employee Retention Tax Credit is $7,000 per employee per quarter.
Can an employer claim the Employee Retention Tax Credit for employees who are not currently working? For employers with more than 500 employees, the credit is only available for wages paid to employees who are not providing services during the period of time that the employer is eligible for the credit.
Can an employer claim the Employee Retention Tax Credit for employees who are no longer employed? No, the credit is only available for wages paid to employees who are still employed by the eligible employer.
Can an employer claim the Employee Retention Tax Credit if they have already received a PPP loan? Yes, an employer can claim the Employee Retention Tax Credit even if they have already received a Paycheck Protection Program (PPP) loan. However, the same wages cannot be used to calculate both the PPP loan forgiveness and the ERTC.
How long will the Employee Retention Tax Credit be available? The Employee Retention Tax Credit was originally scheduled to expire on December 31, 2020. However, it was extended through June 30, 2021, by the Consolidated Appropriations Act, 2021. The credit is currently available for the first two quarters of 2021.
Overall, the Employee Retention Tax Credit can provide much-needed financial relief to eligible employers who have been impacted by the COVID-19 pandemic. By understanding the eligibility requirements and how to claim the credit, businesses can retain their employees and keep their operations afloat during these difficult times. It is recommended that employers consult with a tax professional to determine their eligibility and maximize their potential benefits under the ERTC.
