How the ERTC Reduces Payroll Taxes: Your ERTC Guide

December 5, 2023
Dayes Law Firm

As a business owner, you undoubtedly remember the financial obstacles that were triggered by the COVID-19 pandemic in 2020 and 2021. The government stepped in and created the Employee Retention Tax Credit.

Now that businesses are open again, you can still retroactively file for the ERTC. The ERTC reduces payroll taxes, benefits payroll employees, and helps you financially recover from COVID-19. 

What Is the ERTC? 

The government introduced the ERTC in 2020 through the Coronavirus Aid, Relief, and Economic Security Act. Initially, this tax credit was limited to businesses that hadn’t already claimed Paycheck Protection Program loans. 

However, in 2021, the government amended ERTC eligibility requirements through the Consolidated Appropriations Act. This made it possible for you to claim PPP loans and the ERTC, as long as you didn’t use the same wages for both. 

Additionally, this Act expanded the definition of a “small business.” In 2020, businesses must have had 100 or fewer employees for the IRS to consider them small businesses. In 2021, for the ERTC, the IRS considers all businesses with 500 or fewer employees as small businesses.

The Consolidated Appropriations Act extended the ERTC through 2021, but the Infrastructure Investment and Jobs Act later limited the ERTC to the first three quarters of 2021 for most businesses. 

Benefits of the ERTC 

You might wonder whether the ERTC is worth it or whether it’s just extra paperwork. At Dayes Law Firm, we’ve helped clients collectively recover over $250 million in ERTC benefits. While claiming the ERTC takes time, its benefits can make it well worth the effort. 

1. The ERTC Reduces Payroll Taxes

The ERTC reduces payroll taxes by paying you back for a portion of eligible employee wages you paid in 2020 and 2021. These benefits offset the cost of your payroll taxes.

2. The ERTC Helps You Keep Employees on Payroll

The ERTC provides the financial assistance you may need to keep employees on your payroll. This keeps your business well staffed, your employees happy, and your customers satisfied. 

3. The ERTC Helps Your Business Recover From COVID-19

Many businesses felt the financial impact of COVID-19. Even years later, some struggle to stay afloat. The ERTC is the boost your business needs to get back on its feet.

How Much Can Employers Save With the ERTC? 

For 2020, you can claim 50% of all qualified wages up to $7,000 per employee. For 2021, you can claim 70% of all qualified wages up to $14,000 per employee. 

Who Is Eligible for the ERTC? 

The ERTC has two tests for eligibility: the gross receipts test and the suspension of operations test.

To pass the gross receipts test, you must have seen a significant decline in revenue. For 2020, this means a 50% reduction when comparing the corresponding 2019 quarters. For 2021 claims, your business must experience a 20% reduction in revenue. 

You may also qualify using the suspension of operations test. This requires you to have suspended regular business operations in response to a government order related to COVID-19.

How Do Employers Claim the ERTC? 

Claim the ERTC by amending your tax return, Form 941, for each quarter you paid qualified wages. You can do this using the tax credit form, Form 941-X. Find more ERTC resources on the IRS website.

Claim the ERTC With Qualified Tax Attorneys

The ERTC reduces payroll taxes and comes with numerous other benefits. However, there are risks to consider as well. If you file for this employer tax credit incorrectly, you could face IRS audits and penalties. 

Ensure your claim is accurate and complete with our ERTC recovery team at Dayes Law Firm. Give us a call at (800) 503-2000 or fill out our online form to schedule your free consultation.