The COVID-19 pandemic seriously damaged thousands of businesses nationwide in 2020 and 2021. Over the past few years, plenty of business owners were forced to lay off or furlough employees; some even had to close their doors for good.
If the pandemic affected your business, you might qualify for the Employee Retention Tax Credit (ERTC), also known as the Employee Retention Credit (ERC). Here’s what you need to know about claiming the credit from the ERTC attorneys at Dayes Law Firm.
What Is the Employee Retention Tax Credit?
The ERTC is a refundable tax credit for business owners who kept staff on payroll during the pandemic. If you qualify for the Employee Retention Tax Credit, you could claim up to $5,000 per year per employee for 2020 and $7,000 per worker per quarter in 2021.
The ERTC is a valuable tool for your human resources department. Job security is one of the most important things you can offer employees, and it’s tough to do that if you don’t have money to pay your workers.
Your business can use the ERTC to give employees a bonus, train workers, or rehire people you had to let go during the pandemic. You can also use the credit to buy supplies or pay for bills, such as the rent for office space.
Who Is Eligible?
To qualify for the credit, your business must meet one of two criteria:
- It experienced a major decline in gross receipts
- It had to close, either partially or fully, because of a government order
Here is more about the gross receipts test. To qualify for 2020, your receipts must have dropped by at least 50% compared to the same quarter of the prior year. For 2021, your business will need to have experienced a decline of at least 20%.
If your business doesn’t pass the gross receipts test, it might qualify if you had to close because of a government order. Qualifying events include:
- You had to reduce your hours of operations
- Your city had a curfew that prevented you from staying open past a certain time
- Your local health department sent you a notice to shut your business down for cleaning
- You could no longer travel for business or hold group meetings in person
- You had to close your dining room or limit how many people you could serve indoors at one time
How To Claim the ERTC with the Help of your Human Resources Department
To claim the ERTC, you will need to:
- Calculate the qualified wages paid to each employee. Qualified wages also include health insurance costs you paid for your employees.
- Calculate your credit amount.
- File an amended employer tax return (you can claim the credit with Form 941-X).
Information you’ll need to gather for this process includes:
- Detailed payroll reports with a list of employee names, their wages, and the dates on which you paid them
- Basic information about your business, such as its location and whether you had to reduce employee hours during the pandemic
- PPP loan information (if applicable)
If you’re unsure how much in wages you paid to employees, ask your HR department. ERTC attorneys from Dayes Law Firm can also calculate your credit so you’ll know how much to expect from the IRS.
Contact Dayes Law Firm To Learn More About the ERTC
Understanding and claiming the ERTC can be complicated, but Dayes Law Firm is here to help. If you would like to learn more about incorporating the ERTC into your HR strategies, call 866-567-4510 to speak with our ERTC attorneys today.