The COVID-19 pandemic has significantly impacted businesses worldwide, leading to a reduction in revenue and workforce. Many companies have faced heavy losses due to the pandemic’s economic impact. As a result, businesses have had to take measures to keep afloat.

To support businesses in overcoming the losses due to the pandemic, the government has introduced several measures, including the Employee Retention Credit. 

The ERTC is a tax credit that allows businesses to claim a portion of wages paid to employees during the pandemic. The Employee Retention Credit (ERC)/Employee Retention Tax Credit (ERTC) is a tax credit that the U.S. government introduced as part of the CARES Act. This tax credit was created to help businesses retain their employees during the pandemic. 

Keeping this under concern, we will explore the top 10 things you need to know about the Employee Retention Tax Credit.

Why should businesses apply for Employee Retention Tax Credit?

Businesses should apply for the Employee Retention Tax Credit for the following reasons:

  • To receive financial support during the pandemic.
  • To offset the cost of retaining employees.
  • To boost cash flow.
  • To offset payroll taxes
  • To reduce tax liability.
  • To gain a competitive advantage over other businesses.

Things Every Business Should Know About Employee Retention Tax Credit

1. What is the Employee Retention Tax Credit (ERTC/ERC)?

  • Employer Eligibility: The ERTC is available to eligible employers, including for-profit businesses, tax-exempt organizations, and governmental entities.
  • Business Impact: To be eligible, the employer must have experienced a full or partial suspension of operations due to a government order related to COVID-19, or have experienced a significant decline in gross receipts.
  • Employee Eligibility: The ERTC applies to wages paid to eligible employees, which includes employees who are not working due to a COVID-19-related circumstance, such as a government order to close or reduce operations, or employees who have experienced a significant reduction in hours or pay due to the pandemic.

2. What are the eligibility criteria for ERTC?

To be eligible for the ERC, businesses must have experienced a significant decline in revenue due to the pandemic. The eligibility criteria for that have been expanded to include businesses that were partially or fully suspended due to government orders.

3. How much is the Employee Retention Credit (ERC) worth?

The value of the Employee Retention Tax Credit can vary depending on the specific circumstances of the eligible employer and their eligible employees. However, the maximum credit amount per employee is $5,000 for the 2020 tax year and $7,000 for the 2021 tax year.

The credit is calculated based on qualified wages paid to eligible employees during the time period for which the credit is claimed. For the 2020 tax year, the credit is equal to 50% of qualified wages, up to a maximum of $10,000 per employee for the entire year. 

For the 2021 tax year, the credit is equal to 70% of qualified wages, up to a maximum of $10,000 per employee per quarter i.e. up to $28,000 per employee for the entire year.

4. What are qualified wages for the ERTC?

Qualified wages for the Employee Retention Credit are wages that eligible employers pay to eligible employees during the time period for which the credit is claimed. Qualified wages include wages paid to employees who are not working due to pandemic-related issues, such as being quarantined, experiencing a reduction in hours, or having to care for a child.

It’s important to note that there are additional criteria for determining eligibility for the ERTC, and the specific rules and requirements can be complex. Employers should consult with a tax professional or review the IRS guidelines to determine eligibility and how to claim the credit.

5. Can businesses claim ERTC retroactively?

Yes, eligible businesses can claim the ERTC retroactively for wages paid in 2020 or 2021. However, the deadline for claiming the credit for wages paid in 2020 was July 19, 2021, so employers can no longer claim the credit for that time period.

For wages paid in 2021, eligible employers can claim the credit on their federal employment tax returns for each quarter in which they qualify. The credit can be claimed on Form 941, Employer’s Quarterly Federal Tax Return. 

Employers can claim the credit even if they have already received forgiveness for a Paycheck Protection Program (PPP) loan, although the same wages cannot be used for both the ERTC and PPP loan forgiveness.

6. What is the maximum amount of ERTC  a business can claim?

The maximum amount of ERTC a business can claim depends on the tax year in which the credit is claimed and the qualified wages paid to eligible employees during the relevant time period.

For wages paid between March 13, 2020, to December 31, 2020, the maximum ERTC credit amount per eligible employee is $5,000 for the entire year. The credit is equal to 50% of qualified wages paid during the time period when the employer experienced a full or partial suspension of operations due to the government order or a significant decline in gross receipts.

For wages paid between January 1, 2021, and December 31, 2021, the maximum ERTC credit amount per eligible employee is $7,000 per quarter up to $28,000 for the entire year. The credit is equal to 70% of qualified wages paid during the time period when the employer experienced a full or partial suspension of operations, a significant decline in gross receipts, or during any quarter in which gross receipts were less than 80% of the same quarter in 2019.

7. Can ERTC be used in conjunction with other relief programs?

Yes, the ERTC can be used in conjunction with other relief programs, such as the Paycheck Protection Program (PPP).

8. How can businesses claim ERTC?

Businesses can claim the ERC by reporting the credit on their federal employment tax returns for each quarter in which they qualify. Being the owner of the business, the employer can file Form 941X with the IRS.

It’s important to note that the rules and requirements for claiming the ERTC can be complex and may vary depending on the specific circumstances of each business. Employers should consult with a tax professional or review the IRS guidelines to ensure they are following the correct procedures and claiming the correct amount of the credit.

9. What documentation is required for ERTC?

Businesses are required to provide documentation to support their ERTC claim, including –

  • Records of eligible employees
  • Payroll records
  • Documentation of government orders or decline in gross receipts
  • Quarterly tax returns
  • Health plan expenses
  • Other relevant documentation

10. How can businesses get assistance with ERTC?

Businesses can seek assistance in claiming the ERTC from tax professionals and service providers, such as GConnect Pro, who can help businesses navigate the paperwork and ensure compliance with IRS regulations.

In A Nutshell 

The ERC is a valuable tax credit that businesses can use to overcome the losses incurred due to the pandemic. By claiming this credit, businesses can receive financial support, offset the cost of retaining employees, boost cash flow, reduce tax liability, and gain a competitive advantage over other businesses. 

It helps offset the cost of payroll taxes, encourages businesses to retain employees, and can be used in conjunction with other relief programs. Furthermore, businesses can claim the ERTC retroactively for qualified wages paid between March 13, 2020, and December 31, 2021.

You Still Got Time, File For ERTC and Grow Your Business Today! 

To take advantage of this tax credit, businesses can seek assistance from tax professionals and service providers. GConnect Pro is one such service provider that can help companies to claim the ERTC and potentially receive a six-figure amount in tax credits. 

By outsourcing their ERTC service to GConnect Pro, your businesses can focus on running their operations while GConnect Pro takes care of the paperwork and ensures compliance with IRS regulations.