If you’re a business owner, it’s important to be aware of the various tax credits available to you. One such credit is the Employee Retention Tax Credit (ERTC), which was created as part of the CARES Act in response to the COVID-19 pandemic. The ERTC is designed to provide financial relief to businesses that have been impacted by the pandemic and need help retaining their employees.
To qualify for the ERTC, there are certain eligibility requirements that your business must meet. These include experiencing a significant decline in gross receipts or being subject to a government order that fully or partially suspends your operations due to COVID-19. Additionally, only wages paid between March 13, 2020 and December 31, 2021 can be used for ERTC qualification purposes.
Understanding these requirements and how they apply to your business is essential if you want to take advantage of this valuable tax credit.
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Eligibility Requirements for Employee Retention Tax Credit
You’ll need to meet certain eligibility requirements if you want to take advantage of the Employee Retention Tax Credit. The first factor to consider is the impact of COVID-19 on your business.
You must have experienced a significant decline in gross receipts or faced a partial or full suspension of operations due to the pandemic. This could be due to government orders, reduced demand for your products or services, or supply chain disruptions.
Another important factor when determining eligibility for the Employee Retention Tax Credit is your business size. If you employ fewer than 500 employees, you may qualify for this credit. However, larger businesses may also be eligible for the credit under certain circumstances.
In terms of salary thresholds, if you paid wages during the eligibility period that were below $10,000 per employee per quarter, then those wages won’t count towards the tax credit calculation. On the other hand, if you paid higher wages and had more than 100 employees during any calendar year from 2019 through 2020, then only wages paid to employees who aren’t working will qualify.
Lastly, it’s worth noting that receiving government assistance such as Paycheck Protection Program (PPP) loans doesn’t disqualify you from claiming the Employee Retention Tax Credit. However, any wages used towards PPP loan forgiveness can’t also be used towards this tax credit calculation. Additionally, utilizing both programs may reduce your potential tax liability and improve cash flow during difficult times.
Overall, qualifying for the Employee Retention Tax Credit can help alleviate some financial burdens caused by COVID-19 on businesses and their employees alike. Make sure to consult with a tax professional or accountant before claiming this credit since there are specific rules and requirements that must be met in order to receive it properly.
Understanding Qualified Wages for ERTC Qualification
Don’t miss out on saving money for your business by not understanding which wages qualify for the Employee Retention Tax Credit (ERTC). Qualified expenses are those that meet the IRS guidelines and wage restrictions.
Only qualified wages paid between March 13, 2020, and December 31, 2021, can be used to calculate this tax credit. According to the IRS guidelines, qualified wages include salary, hourly pay, and any other form of payment made to employees. However, there are limits imposed on how much of these payments can be counted towards the ERTC. The maximum amount of qualified wages that can be used is $10,000 per employee per quarter in 2021.
It’s essential to note that documentation requirements must be met before claiming the ERTC. Employers must keep records of all qualified wages paid during this period and provide evidence of eligibility before filing their taxes. Failure to comply with these documentation requirements may result in losing out on valuable savings for your business.
The tax credit percentage varies based on certain factors such as business size and revenue loss. Small businesses with a gross receipt reduction rate greater than 50% are eligible for a maximum credit amount of $7,000 per employee per quarter in 2021.
Understanding what qualifies as a qualified expense under IRS guidelines is vital when calculating this tax credit accurately.
How to Claim the Employee Retention Tax Credit
We suggest you use a CPA who is an expert in ERTC since it’s a very complex calculation. Most day-to-day CPAs may not have time to calculate the refund, or learn about the refund itself. And most CPAs may only qualify you for loss-of-income when there are many other Government restrictions your business can qualify for.
There are many Expert ERTC Firms that do nothing else but ERTC. You wouldn’t go to your General Practitioner Dr. to get a knee replacement, instead you’d go to an Orthopedic Specialist to perform the procedure. Expert ERTC Firms are comparable to your Orthopedic Specialist. Make sure you choose an ERTC firm that has been in business for at least the last two years, which is when Congress changed the Legislation that allows for businesses to apply for the ERTC, even if you already got PPP. Many ERTC firms have popped up over recent months claiming they are experts. Beware of any ERTC firm that claims you can get your refund in two days, or require you to pay their fee up front. The IRS has warned about these last-minute firms that will tell you that your business qualifies when in fact it doesn’t. A legitimate expert ERTC firm will tell you if you don’t qualify, and it won’t cost you any money to find that out. A lot of last-minute ERTC firms are telling business they qualify when they don’t. That leaves you on the hook to not only pay back the refund, but to pay interest and penalties, while the ERTC firm is long gone because they’ve already collected their fee from you. You want to hire a firm that doesn’t get their fee until you get your refund if your business qualifies. And your ERTC firm should be willing to have their CPAs sign off on Form 941-X.
Claiming the ERTC can be a complicated process requiring detailed calculation and documentation requirements. But if done correctly, it could provide much-needed financial support for businesses impacted by COVID-19 pandemic restrictions and closures.
Important Deadlines to Keep in Mind for ERTC
The deadline to file for the 3 quarters in 2020 is April 14, 2024
The deadline to file for the 3 quarters in 2021 is April 14, 2025
You should consider filing for both 2020 and 2021 by April 14, 2024 to get the full credit your business may qualify for.
If you wait until April 14, 2025 to file, you’ll forfeit any credits you may have been eligible for for tax year 2020.