What is the Employee Retention Tax Credit (ERTC)?
Employers who employed and paid their employees during the COVID-19 outbreak are potentially eligible for the Employee Retention Tax Credit (ERTC), which is essentially a tax refund. The ERTC or also referred to as ERC (Employee Retention Credit) is essentially a tax refund with a maximum of $26,000 per employee (or $7,000 per quarter max). The credit is equivalent to 50% of each employee’s qualifying wages during the defined periods. Businesses must also have seen a revenue decline of at least 50% from the same quarter the year prior in order to qualify.
What does Employee Retention Tax Credit (ERTC) refer to?
The Employee Retention Tax Credit was created by Congress as part of the CARES Act to help businesses that employed workers during the COVID-19 pandemic. Companies that keep paying at least minimum wage during the COVID-19 pandemic may obtain a tax benefit (ERTC). This 50% pay credit can lower an employers’ liability by up to $10,000 or more. Companies that were closed due to a COVID-19 government directive or suffered a significant drop in gross receipts are also eligible for the ERTC. The ERTC is a federal tax credit that also provides businesses with up to 100% reimbursement for specific employee expenses.
Businesses can claim the credit for eligible expenses incurred after March 31, 2020 and before January 1, 2022. Businesses of all sizes have been fighting for survival in the global economy since the COVID-19 pandemic started in March of 2020. We now know that the government has implemented several programs to help businesses of all types to weather the unpredictable years / months that followed. ERTC, or Employee Retention Tax Credit, is one such federal program. Since its inception in 2020, this tax credit has undergone some minor modifications. It’s important to understand the many misconceptions with the ERTC program.
How does Employee Retention Tax Credit (ERTC) work?
The ERTC is a tax credit for businesses. It only applies to full time employees (FTE), not contractors. Unlike tax deductions, ERTC tax credits reduce a business’s tax liability. Businesses that use the tax credit will owe fewer taxes. As a refundable tax credit, any qualified company can obtain the full ERTC regardless of their earnings or other tax responsibilities. Eligibility Criteria for Employee Retention Tax Credit (ERTC). If your company’s revenue drops by 20% during the first and third quarters of this year compared to the corresponding time in 2019, you may qualify for the 2021 ERTC (or 2020 even if the business was started in 2020). During the COVID-19 pandemic, qualified employers who kept their employees working and on the payroll are eligible for the Employee Retention Tax Credit, and are entitled to receive a credit against their federal income taxes. The credit is equivalent to fifty percent of the earnings that are considered “qualified” that were paid to each employee. Employers must either have had a significant drop in gross receipts, or have had a full or partial shutdown of their business as a result of an order from a governmental entity linked to COVID-19 in order to be eligible for the ERTC. Employers that are qualified for the credit are able to submit claims for it for salaries earned between March 13, 2020 and December 31, 2021. To be eligible for the credit, businesses must have fewer than 500 employees. The tax credit can be applied to a variety of training expenses, including tuition, fees, and other associated costs.
The ERTC is a fantastic incentive for companies to be rewarded for retaining skilled workers and promoting job retention. The credit can be a significant factor in retaining employees, and businesses should take advantage of this tax break whenever possible. The Federal Government has made billions of dollars available for this program, you just need to act on it while it lasts. There’s no upfront cost to apply, and your business could be eligible to receive tens of thousands of dollars or more from the IRS in just a matter of weeks. Apply for your ERTC refund here.