How Is the ERTC Different from Previous Tax Credits?

January 8, 2024
Dayes Law Firm

At the beginning of the pandemic, employment in the United States fell by a combined 22.4 million jobs in March and April 2020. To incentivize employers to keep workers on staff, the federal government created the Employee Retention Tax Credit (ERTC).

ERTC tax information is complex, but businesses that retained workers on their payroll may qualify for the tax refund for 2020 or 2021. You must have experienced a significant decline in revenue or suffered a full or partial suspension of operations due to a COVID-19 government order. Eligible businesses can claim up to $5,000 per employee per quarter for 2020, or $7,000 per employee per quarter for 2021.

A qualified attorney can answer any questions you have about ERTC tax details. The ERTC attorneys at Dayes Law Firm explain how this program differs from previous tax credits you may have claimed. 

The ERTC Is a Refundable Tax Credit

Tax refunds come in several types. If you qualify for a non-refundable tax credit, you can only use it to reduce the amount of taxes you owe. If your non-refundable tax credit is larger than your tax liability, you forfeit the difference. The government will not return the remainder to you. Federal credits such as the child tax credit, the lifetime learning credit, and the energy-efficient home improvement credit are non-refundable.

The ERTC, however, is fully refundable. That means even if your company doesn’t owe any taxes, you can still take advantage of the credit. ERTC IRS guidelines allow the agency to issue you the credit in the form of a payment. Refundable income tax credits include the earned income tax credit (EITC), the mortgage interest credit certificate, and the small business health care tax credit. 

If you haven’t yet filed an ERTC claim, review ERTC tax information with a knowledgeable tax professional to make sure your business qualifies. 

The ERTC Is a Time-Limited Tax Credit

When understanding ERTC taxation differences, it’s also important to look at any time limitations. Unlike the research & development (R&D) tax credit, which has been around for over 40 years, the ERTC didn’t exist until 2020. In addition, unlike the EITC — which you can claim annually into the foreseeable future — the ERTC is only valid for tax years 2020 and 2021.

Because the purpose of the ERTC was to address pandemic-related financial challenges, the federal government has opted not to expand it into further years. You can still apply for the credit, but you will need to do so retroactively by filing an amended tax return for the years you wish to claim. The ERTC filing deadline is April 15, 2024, for all quarters of 2020 and April 15, 2025, for 2021.

If you’ve taken advantage of another pandemic-era initiative, the Paycheck Protection Program (PPP), you may still qualify for the ERTC. However, one important piece of ERTC tax information to keep in mind: you cannot claim the tax credit on wages paid using PPP funds.

Dayes Law Firm Offers Professional ERTC Help

If you’d like more Employee Retention Tax Credit information, contact the ERTC team at Dayes Law Firm. We can explain how tax credit reporting for the ERTC differs from other types of tax credits, assist you in determining your eligibility for the credit, and help you claim the maximum amount you are entitled to. Call us at 800.503.2000 for a free case evaluation