If you own a business, you’ve probably been hearing a lot about the Employee Retention Tax Credit (ERTC). It is a part of the March 2020 CARES Act meant to reward businesses that retained full-time employees during the pandemic, and eligible employers can get up to $26,000 per employee.
Note that we said “up to $26,000,” which means that you might not be able to claim that much. This article contains 4 tips to help you increase your business’s ERTC check.
Determining Eligibility for the ERTC Credit
Originally, businesses couldn’t get the ERTC credit if they had been granted loan forgiveness from the Paycheck Protection Program (PPP). However, that has now changed thanks to the Consolidated Appropriations Act (CAA).
To be eligible for the credit, your business must have experienced one of the following:
- A drop in 2020 revenue equal to at least 50% of 2019 baseline revenue, with continued eligibility until you reach 80% of revenue for the same quarter in 2019.
- Your business experienced either a full or partial suspension of operations due to a local, state, or federal government regulation.
- You started a business during the second half of 2021.
The wages eligible for the credit are qualified wages paid between March 12, 2020, through December 31, 2021, and eligibility is determined on a quarterly basis.
Though you can still get money if you received PPP funds, “double dipping” is not allowed. For example, if you used PPP (Paycheck Protection Program) funds solely to pay wages, you cannot claim the ERTC credit for those salaries.
Tips to Increase ERTC Credit
Once you determine that you’re eligible to claim the credit, you can increase the credit by following these tips:
- If you haven’t applied for PPP loan forgiveness yet and you didn’t spend the funds exclusively on payroll, you can still get ERTC funds. For example, PPP loan recipients could spend up to 40% of the funds on things other than wages and health insurance. Therefore, if you used 40% of your PPP funds on payroll taxes, pension contributions, rent, utilities, or mortgage interest, that 40% wouldn’t count as double dipping.
- Consider both revenue and operations qualifications for each quarter. For example, your business might not have met the threshold for revenue reduction one quarter, your operations were substantially affected by a government order. For that quarter, you would qualify based on suspended operations.
The next quarter might not have had an operation restriction, but if your revenue dropped below the threshold, you could qualify on that basis.
- Review the timing of your PPP loans. Even if you maxed out your PPP loan for wages, you could still get ERTC funds during “gaps” when PPP funding didn’t pay salaries.
- Don’t forget to aggregate your businesses. If you own more than one business, the formula for calculating employee retention credits considers all three businesses to come up with a single ERTC sum. This means even if only one of your businesses experienced a revenue drop or interference with operations, your entire portfolio could qualify.
Don’t Miss Out on the Employee Retention Tax Credit
It’s not too late to claim this tax credit, but time is running out. Applying for the credit requires that you file an amended 941-X payroll tax form, and it’s highly recommended to consult someone with experience in this area to ensure you claim the maximum credit without coloring outside of the legal lines.
Dayes Law Firm has helped businesses file for over $250 million in Employee Retention Tax Credits. We offer a no-cost, no-obligation evaluation to determine your eligibility and discuss your options for applying. Please call us at 800-503-2000 or contact us online to learn more.