December 10, 2021

Employee Retention Credit

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Are you a small business owner who wants to learn more about the Employee Retention Tax? Do you want to find out if you can claim this credit for your small business? If you said yes to both these questions then keep reading.

The Employee Retention Tax Credit

The Employees Retention Tax Credit (ERTC) was created as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. It is designed to help businesses suffering from the pandemic to still keep employees on their payrolls.

The main idea behind this act was to encourage these small business owners to help retain their employees in the wake of a pandemic. 

It was after things started to open up across the country that Congress extended these relief programs. It was done through the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA).

This act has now become the second-largest source of providing financial assistance to small businesses during the pandemic. As of today, more businesses can make use of this act. You will find out everything that you need to know about the ERTC if you are a small business owner.

The ERTC is a credit. It helps in providing tax relief to small businesses that went through loss during the COVID-19. Most of the small businesses are eligible for this tax credit to get a refund that is equal to a percentage of the wages per employee.

During 2020, the credit tax was almost 50% of $10,000 of the daily wages and healthcare facilities that were paid to them. This year, employees are eligible to claim almost all of the wages and healthcare benefits paid to each 70% of $10,000.

What Is This Tax Credit Worth In 2021?

This year, small businesses can get at least 70% of the first $10,000 wages that are qualified for every employee in each quarter. An employer must be allowed $7,000 in every quarter. It can go up to $28,000 per employee in 2021. It will all add up to be a significant fund for the employees.

For instance, if you have 10 employees it will be:

(10 employees) * ($5k + $28k) = $330,000

In the case of 50 employees:

(50 employees) * ($5k + $28k) = $1.65 million

What Small Businesses Qualify Under The ERTC?

If you want to be on the eligible list of the ERTC, you must trade or carry out the business activities during 2021.

Here is the list of tests that employers should also pass:

Government Order - If a small business wants to be eligible for the ERTC, the business must have either partially or completely shut down its operations during the quarter due to the restrictions imposed by the state or the government being imposed on them during the pandemic.

Reduced Gross Receipts - These reduced gross receipts also include the PPP loan forgiveness. Last year, the decline was recorded for 50% in any of the quarter as compared to that of 2019. For this year, the decline has been decided for 20% or less in the quarter as compared to that of 2019.

One thing that needs to be kept in mind for the ERTC is the different size elements that are eligible for wages based on the total number of full-time employees (FTEs). If you want to qualify for the 2020 tax credit, you will be considered a small business if you have a total of 100 or fewer FTEs.

For this year's tax credit, your small business would be considered eligible only if you have 500 or fewer average FTEs.

What If You Received A PPP Loan?

Under the CARES Act, in case a small business had applied for a PPP loan and had repaid it, they were not eligible to apply for an ERTC. However, that is not the case anymore.

The CAA and ARPA have both allowed you to make the most of this opportunity. All you have to do is avoid double dipping. Another thing about the ERTC is that you cannot claim it if you are using funds that you acquired from a PPP loan.

When Will The Tax Credit Be Available?

If you are a small business, the ERTC will be made available to you in the next 2 tax credit years. It means for both 2020 and 2021.

The wages that were paid to employees after March 12 to December 31, 2020, are eligible for the tax credit. In case you have already filed for the tax return for 2020, you still have the opportunity to claim this tax credit and amend returns.

You can also discuss the tax return options with a financial advisor in case you are still unsure about the eligibility of your small business. 

For instance, A restaurant in Galveston, Texas filed amends in 2020 to get back $552,000.

How Will Your Small Business Claim The ERTC?

This payroll tax credit has been reported on Form 941. This kind of tax credit is quite different from income tax. If your small business is eligible for this tax credit, your employer can reduce the employment tax deposit with the IRS. Any advance payments are made available to the small businesses by using Form 7200 Advance Payment of Employer Credits due to the pandemic.

Do You Need Assistance Claiming Your ERTC?

Small business owners can easily benefit from the ERTC. They can take advantage of such pandemic relief programs. To find out if your small business is eligible under the ERTC, click the button below right now!