The Employee Retention Tax Credit (ERTC) is a refundable program that allows eligible businesses to claim tax credits on qualified employee wages paid to staff during the peak of the COVID-19 pandemic. If your business continued paying wages despite financial losses from the pandemic in 2020 and 2021, learn how to calculate the ERTC below to see how much your business qualifies for.
Dayes Law Firm assists businesses seeking to claim maximum tax credits. Here is how to calculate your business’s Employee Retention Tax Credit in five simple steps.
1. Determine Your Eligibility for the Employee Retention Tax Credit (ERTC)
Businesses that fall into one of the following categories are typically eligible for the ERTC:
- Businesses that experienced a partial or full closure from an order limiting commerce travel or group meetings in response to COVID-19
- Businesses that experienced a significant decline in gross receipts (less than 80% compared to the same quarter in 2019)
2. Calculate Your Full-Time Employee (FTE) Figure
Once you confirm you’re an eligible employer, calculate your full-time employee (FTE) figure. According to the IRS, a full-time employee works at least 30 hours per week or 130 hours per month.
Add up the number of FTEs for your qualifying years, then see which category below applies to you:
- Small businesses (100 or fewer FTEs in 2019 for 2020 claims OR 500 or fewer in 2019 for 2021 claims): Wages you paid to employees for services and non-provided services will count as qualified wages.
- Large businesses (100 or more FTEs in 2019 for 2020 claims OR 500 or more in 2019 for 2021 claims): Only wages you paid to employees not providing services will count as qualified wages.
3. Gather All the Necessary ERTC Filing Documents
Ensure you have the following materials on hand before you calculate the ERTC per employee:
- Tax returns for 2020 through 2021
- Payroll documents for both years
- Profit records from 2019 to 2021
- Accounts showing your full- and part-time employees from 2019 to 2021
4. Add Up Your Qualified Wages Using the Following Calculations
How you calculate the ERTC per employee will depend on the tax year(s) you qualify for.
Wages for 2020 include your payments to employees between March 13 and December 31 of that year. You can claim 50% of qualified wages, with a maximum of $10,000 per employee for 2020. The maximum you can claim for an employee for the year would be $5,000.
2021’s qualifying payment period goes from January 1 to September 30 unless you qualify as a recovery startup business, extending the period to December 31, 2021. For 2021, you can claim 70% of qualified wages per quarter with a maximum of $10,000 per employee. Using this calculation, you can claim a maximum of $7,000 for each employee per quarter, totaling $21,000 per employee for 2021.
5. Claim Your Credit by the Deadline
After calculating your ERTC, you can claim by filing an amended tax return with Form 941-X or by working with a tax professional. You must retroactively claim your credit for 2020 or 2021 by the following deadlines:
· 2020 claims: April 15, 2024
· 2021 claims: April 15, 2025
Do You Need Professional ERTC Filing Support?
If you have additional questions regarding the Employee Retention Tax Credit program, we’re happy to help. At Dayes Law Firm, we offer free, no-obligation consultations to help your business understand its eligibility and options. Call Dayes Law Firm in Phoenix, AZ, today at (866) 567-4510 so we can help you calculate the ERTC for your business.