ERTC for Dummies: A Simple Explanation of Tax Credit
The Employee Retention Tax Credit (ERTC) is a refundable tax credit introduced in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, originally passed on March 27, 2020. An eligible employer can claim a refund of the payroll tax paid on qualified employee wages during the height of the pandemic. Check out the following essential ERTC guide to learn about this business tax credit.
What Is the ERTC?
The Employee Retention Tax Credit is a refundable tax credit that eligible employers can claim with a Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. Businesses may be able to seek a refund of up to $26,000 per employee for the eligibility period in 2020 and 2021.
Employers can claim the credit for 2020 and the first three quarters of 2021 unless they are a recovery startup business that opened on or after February 15, 2020. Recovery startup businesses may be able to claim the ERTC for Q3 and Q4 of 2021 for $50,000 each quarter, or $100,000 total.
For 2020, employers can get a credit of up to 50% of $10,000 in qualified wages paid ($5,000) per employee. Employers can claim a credit of up to 70% of $10,000 ($7,000) of qualified wages paid per employee per quarter for the first three quarters of 2021 for a total of $21,000 for the year.
Employers should know the IRS guidelines against double-dipping multiple payroll tax credits for amended employment taxes on their 941-X. If you claim another credit like the R&D Tax Credit or use a Paycheck Protection Program (PPP) loan to pay certain wages, you cannot apply the ERTC to those same wages.
To claim your ERTC, you must file your amended tax return within the statute of limitations, which is three years after the original due date. For a 2020 claim, you must file your 941-X by April 15, 2024. For a 2021 claim, you must file your 941-X by April 15, 2025.
Eligibility To Claim the ERTC
In this ERTC guide, learn more about your company’s eligibility to claim the credit. To be able to claim the ERTC, a business must have:
- Been fully or partially shut down in response to a government mandate that affected travel, commerce, or occupancy, OR
- Experienced a significant decline in gross receipts of 50% or more in 2020 compared to the same quarter in 2019, OR
- Experienced a significant decline in gross receipts of 20% or more in the first three quarters of 2021 compared to the same quarter in 2019, OR
- Been a recovery startup business that meets separate claim parameters
Small vs. Large Employer Claims
The size of your company and the number of employees you have affects your eligibility to claim certain qualified wages. In 2020, if your company had over 100 employees, you would have been a “large employer.” This number increased to over 500 employees in 2021 to be considered a large employer.
Small employers can claim qualified wages for employees paid during the eligibility period. Large employers may only claim wages paid to employees who did not provide services during the eligibility period. Qualified wages include salaries, tips, and employer health plan contributions.
Contact Dayes Law Firm for More Information About the ERTC
For information about whether your company qualifies to apply for the ERTC, reach out to Dayes Law Firm. Call (866) 567-4510 today or contact us online to schedule a free consultation with an experienced employment tax attorney.