The Employee Retention Tax Credit (ERTC) is a refundable tax credit for businesses or tax-exempt organizations to claim for qualified wages paid in 2020 and the first three quarters of 2021. But what are qualified wages, and how do the ERTC and employee leave affect wage calculations for an amended return to claim payroll tax credits?
What Is the ERTC?
The ERTC is a tax credit introduced in the Coronavirus Aid, Recovery, and Economic Security (CARES) Act that eligible employers can claim for qualified wages paid between March 13, 2020, and September 30, 2021. To claim the ERTC, qualifying employers must file a Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
Businesses or tax-exempt organizations may be eligible to receive up to $26,000 per employee for the eligibility period. Recovery startup businesses are those that opened on or after February 15, 2020. These businesses could qualify to claim up to $100,000 in ERTC benefits.
Eligible employers can claim the ERTC through the statute of limitations for tax return amendments, which is three years from the date the original tax return was due. For claims applicable to the 2020 tax year, employers have until April 15, 2024. For 2021 claims, employers can file their 941-X by April 15, 2025.
Qualified wages paid include salaries, tips, and employer health plan contributions. Employers should know the IRS guidelines against “double-dipping,” or claiming multiple tax credits for the same wages.
If you’re claiming multiple tax credits, such as the ERTC, FMLA, or R&D Tax Credit, or if you paid wages with a Paycheck Protection Program (PPP) loan, you should speak with a tax professional to determine how to apply each credit while remaining in compliance with IRS guidelines.
Is Bereavement Covered Under the FMLA?
The Family Medical Leave Act (FMLA) is a program that requires employers of a certain size to offer at least two weeks of paid family leave for certain reasons, such as illness, childbirth, or adoption, or to care for a loved one with a serious health condition.
If your business is required to offer benefits under the FMLA, bereavement is not covered by the FMLA. Additionally, your company may not claim the ERTC for wages paid under the FMLA. Instead, there is a separate credit for employers to claim a partial refund for FMLA wages paid under IRS Code Section 45S.
Remember that you cannot claim multiple tax credits for the same wages and that the ERTC only applies to qualified wages paid. Claiming the ERTC and employee leave wages could trigger an audit for your claim.
When Is a Business or Tax-Exempt Organization Eligible To Claim the ERTC?
When can a business claim the ERTC? A business is eligible to claim the ERTC when:
- They followed government orders for a full or partial shutdown according to federal, state, or local authorities, OR
- They experienced a significant decline in gross revenue of 50% or more in 2020 compared to the same quarter in 2019, OR
- They experienced a significant decline in gross revenue of 20% or more in the first three quarters of 2021 compared to the same quarter in 2019, OR
- They qualified as a recovery startup business
Call Our Firm for More Information About the ERTC
The ERTC and employee leave tax credits are complex IRS policies. For more information about whether your company qualifies to claim the ERTC, reach out to Dayes Law Firm. Call (866) 257-1223 today or contact us online to schedule a free consultation with an employment tax attorney.