Employee Retention Tax Credit Summary

What is the Employee Retention Tax Credit

In response to the COVID-19 pandemic, the U.S. government has introduced various measures to help businesses weather the economic downturn.

One of the most significant of these is the Employee Retention Tax Credit (ERTC), a tax credit that rewards businesses that keep their employees on the payroll during these challenging times.

89% of businesses are currently unaware for the ERTC credits

In this article, we'll provide a comprehensive summary of the ERTC, including its benefits, eligibility criteria, and how to apply.

How Does The Employee Retention Tax Credit Work?

The Employee Retention Credit (ERC) is a program created by the CARES Act to incentivize employers to keep employees on their payrolls during the COVID-19 pandemic.

The ERC is a refundable tax credit against certain payroll taxes, and it is not a loan. It can be claimed on qualified wages, including certain health insurance costs, paid to employees.

The program allows small business owners to keep paying their employees that have been affected by the pandemic. Eligible employers are able to claim the credit for qualified wages paid through December 31, 2020.

What Is The $26000 Employee Retention Credit?

The Employee Retention Credit (ERC) is a refundable tax credit against certain employment taxes equal to 50% of qualified wages paid to employees during the COVID-19 pandemic, up to a maximum of $26,000 per employee.

Eligible employers are those who were partially or fully suspended by government orders due to the pandemic or saw their gross receipts decline by more than 20%. The credit is available for wages paid between March 12, 2020 and December 31, 2021.

Benefits of the Employee Retention Tax Credit: Summary:

The Employee Retention Tax Credit (ERTC) provides a wide range of benefits to employers affected by the COVID-19 pandemic:

The ERTC is a fully refundable tax credit, available for up to $28,000 per employee for 2021, and provides employers with a significant financial incentive to retain their employees.

The maximum benefit for 2020 is $5,000 in fully refundable credits per employee.

The ERTC is a credit against payroll tax deposits, meaning that businesses can deduct wages and certain health insurance costs from their payroll taxes.

The ERTC initially offered employers 50% of qualified employee wages up to $10,000 for any one employee. This generous offering helps businesses retain valuable staff and helps to minimize economic turmoil caused by the pandemic.

The Employee Retention Tax Credit (ERTC) is a refundable tax credit that businesses can claim on qualified wages paid to their employees.

The ERTC applies to wages paid from March 13, 2020 to January 1, 2022 and offers employers a credit of up to 70% of qualifying wages per employee, with a maximum of $7,000 per employee per quarter in 2021.

Employers may also be eligible for ERTC if their business has been partially or completely suspended due to federal, state or local government orders related to COVID-19.

The ERTC can be used in conjunction with the Paycheck Protection Program and other COVID-related relief programs, allowing employers to maximize the benefits available to them.

Employers are also eligible for a retroactive credit for the 2020 tax year if they have not already received a refundable tax credit for qualified wages paid during that time period.

Increased Cash Flow: The Employee Retention Tax Credit is a refundable tax credit, which means businesses can receive full or partial refunds on qualified wages and health insurance premiums. This helps to increase cash flow and save money on employee costs.

Flexibility: The Employee Retention Tax Credit allows employers to claim the credit for any quarter in 2020 or 2021, as long as they qualify for the credit. This gives employers the flexibility to choose when and how they want to take advantage of the credit.

Expansion of Eligible Employees: The recently passed American Rescue Plan widens the scope of eligible employees for the Employee Retention Tax Credit. Now, employers can claim credits for employees who were not previously eligible including some long-term employees and part-time workers.

Higher Maximum Credits: The American Rescue Plan also increases the maximum amount of credits available to employers. The maximum credit per employee is now $21,000 for 2021, up from $10,000 in 2020. This provides more incentive for businesses to take advantage of the Employee Retention Tax Credit.

Increased Funding: The American Rescue Plan has also increased funding for the Employee Retention Tax Credit from $50 billion to $80 billion. This additional funding ensures that more businesses can access this important tax credit and reap its benefits.

Do You Get Money Back From The Employee Retention Credit? - Application Process for the Employee Retention Tax Credit - Summary:

The Employee Retention Tax Credit (ERTC) is a refundable tax credit designed to help eligible employers offset the cost of wages for their employees during the COVID-19 pandemic.

The credit is equal to 50% of the qualifying wages paid to each eligible employee, up to $10,000 of wages per employee per quarter.

To be eligible for this credit, employers must have experienced either a full or partial suspension of their operations due to governmental orders related to the coronavirus pandemic or have had a significant decline in gross receipts during any calendar quarter in 2020.

To calculate the amount of their ERTC, employers must first identify their qualified wages for each employee. Qualified wages are those that are incurred after March 12th, 2020 and before January 1st, 2021 and are paid between March 12th and December 31st. Health insurance costs can also be included in the qualified wages calculation.

Once qualified wages have been identified, employers can then calculate the amount of ERTC they can receive by multiplying those qualified wages by 50%. This amount will be limited to $10,000 per employee per quarter. Employers should then apply this amount against their quarterly payroll taxes. Any excess amount can then be claimed as a refundable tax credit on the employer’s income tax return.

It is important to note that employers cannot claim both the Employee Retention Tax Credit and the Paycheck Protection Program loan at the same time for any given period or employee.

Additionally, employers who have received PPP loans may still be eligible for ERTC depending on how much of their loan has been forgiven. Employers should consult with their advisors for guidance on eligibility for these programs and any other tax credits related to COVID-19 relief.

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How Do I Claim My ERC Credit 2022- Here's How Employers Can Claim The ERTC:

1. Determine Eligibility: Employers should first determine if they are eligible for the ERTC based on their business operations, governmental orders, and total amount of qualified wages paid during the relevant quarter.

2. Calculate Qualified Wages: Employers should then calculate their qualified wages for each employee and total it up for all employees in order to determine the total amount of qualified wages paid during the relevant quarter.

3. File Form 941: Employers should then file Form 941 with each quarterly payroll tax return in order to claim their ERTC on their payroll taxes.

4. Claim Credit: Once Form 941 is filed, employers can then claim their ERTC on their payroll taxes as a refundable credit against certain employment taxes.

5. Claim Additional Credit: If an employer has received a Paycheck Protection Program (PPP) loan and used it for qualified wages, they may be able to claim an additional credit equal to the amount of certain expenses paid with PPP loan proceeds that are not otherwise deductible by taking an adjustment on Form 941-X or by filing a revised Form 941.

By following these five steps, employers can take advantage of this valuable tax credit and receive a refundable credit against certain employment taxes equal to 50% of their qualified wages up to $10,000 per employee per quarter.

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FAQs About The Employee Retention Tax Credit: Summary:

Q1: What is the Employee Retention Tax Credit (ERTC)?

A1: The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit available to employers who retain their W2 employees by keeping them on the payroll. It is a fully refundable tax credit for employers equal to 50 percent of qualified wages, including allocable qualified health plan expenses.

Q2: Who is eligible for the Employee Retention Tax Credit?

A2: To qualify for the ERTC, businesses must have 500 or fewer employees in 2019 and their quarterly gross receipts in 2020 and 2021 must be significantly lower than their receipts in 2019.

Q3: How much can I receive through the Employee Retention Tax Credit?

A3: The Consolidated Appropriations Act, 2021 (CAA 2021) broadened the applicability of the credit, so businesses can now claim up to $33,000 per employee.

Q4: How do I take advantage of the Employee Retention Tax Credit?

A4: To take advantage of the ERTC, you will need to submit Form 941 with your quarterly taxes. You should also consult with a qualified tax professional to ensure that you are properly taking advantage of all available credits and deductions.

Q5. How do employers claim the Employee Retention Tax Credit?

A5. Eligible employers can claim the credit by filing Form 941 and completing Schedule R (Form 941). Employers can also elect to claim a portion of their credit as an advance payment from the IRS by submitting Form 7200 (Advance Payment of Employer Credits Due to Covid-19).

Q6. Are there any other requirements for an employer to qualify for the Employee Retention Tax Credit?

A6. Yes, employers must have experienced either a full or partial suspension of their business due to COVID-19 related governmental orders, or experienced a significant decline in gross receipts compared to 2019 or 2020 quarters in order to qualify for this credit.

Q7 Can self-employed individuals claim an employee retention credit?

A7 No, self-employed individuals are not eligible for this credit; only employers with 500 or fewer employees are eligible for this tax credit as of 2021.

Q8 What kind of documentation is needed when claiming an employee retention tax credit?

A8 Employers will need to provide documentation such as payroll records and forms, financial statements, proof of governmental orders suspending business activities, etc when claiming this tax credit on their taxes.

Q9 Why isn’t my banker or my CPA talking about this, or bringing this to my attention?

A9 Your banker, CPA, or Financial Advisor was probably very helpful when it came to getting your PPP funds because they were effectively signing you to an SBA-guaranteed loan. The SBA paid the bank administrative fees based on the PPP loans they made, and so they were incentivized to educate you about the program and get all your paperwork in order.

Compared to the ERTC, the PPP program was also a rather simple calculation. 2 ½ times your average monthly payroll including health insurance and state unemployment taxes.

From the conversations we’ve had with bankers, they have no interest in involving themselves in your employment tax compliance. For them it is a liability and beyond their scope of services

Q10. Is there a worksheet for the Employee Retention Credit?

A10. Yes, the IRS has created Form 941 Worksheet 4 to help employers calculate their refundable and nonrefundable portions of the employee retention credit during the third quarter of 2020.

Additionally, the IRS has created Worksheet 1 to assist employers in calculating the tax credits to which they are entitled. When completing Form 941, Worksheet 1 pops up and line 3a must be overridden in order to populate the rest of the form.

It is important to note that the Employee Retention Credit was not originally available to employers who received PPP loans, however, this restriction has been lifted by the Taxpayer Certainty and Disaster Tax Relief Act.

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Q11. How Do I Report ERC Credit On My Tax Return?

A11. Eligible employers can report their ERC eligible wages and claim the related tax credits on their federal payroll tax returns (Form 941).

Employers can then claim the Employee Retention Credit on their federal employment tax returns, usually Form 941, by filing amended employment tax returns (Forms 941-X) for applicable quarters.

If a business is eligible for the ERC in 2020 and has not yet claimed the credit, they can file amended payroll tax forms to claim the credit. Additionally, Form 3949-A can be used to report any suspected tax-related illegal activities related to ERC claims.

Q12. How long do I have to claim the ERC Credit?

A12. Eligible employers can claim the Employee Retention Tax Credit (ERC) on an original or adjusted employment tax return for a period within March 13, 2020 to April 15, 2024 for all quarters in 2020; and within April 15, 2025 for all quarters in 2021. Although the program is set to sunset at the end of 2021, employers may still be able to claim the credit on amended payroll tax returns as long as the statute of limitations allows.

Q13. How long does it take; if eligible, to get the IRS ERTC Credit payout?

A13. Now that you know about the ERTC, do not wait around! It takes approximately 18 weeks from the 10-question Questionnaire filled out to the IRS payout. But, lots of people are becoming aware and taking advantage of getting their Credits back, so if you wait, the line up gets longer. It could take twice as long if you wait…

Conclusion:

The Employee Retention Tax Credit provides valuable financial support to businesses that were struggling during those challenging times.

If you're a business owner, it's important to understand the eligibility criteria and application process for this credit to take advantage of the benefits it offers.

Consult with qualified ERTC Tax professionals to determine your eligibility and maximize your tax savings today.

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