Tax Planning for the Employee Retention Tax Credit
If your business experienced significant financial loss during the pandemic, you may qualify for the Employee Retention Tax Credit (ERTC), potentially recovering thousands of dollars for your company.
As of 2023, the deadline to file ERC claims for all calendar quarters in 2020 and 2021 is April 15, 2024. This means that if you haven’t claimed the tax credit yet, it’s not too late. But you’ll want to start ERTC tax planning soon to avoid missing the deadline and recover your funds as soon as possible.
Here’s what you need to know to plan for the ERTC.
Who Is Eligible For the ERTC?
The first step of ERTC tax planning is to make sure your business is eligible for this tax credit. Falsely claiming a tax credit can lead to penalties from the IRS, which could set your business back even further.
The IRS offers two tests to help businesses determine whether they qualify, and you must meet the criteria under at least one to be eligible for the ERTC. The first is the Government Order Test. Your business would be eligible if, for at least one calendar quarter in 2020 or 2021, your business operations were fully or partially suspended due to a government order.
Several government orders were in place throughout the U.S. during 2020 and 2021. Some businesses, like bowling alleys, were forced to shut down altogether. Others, like gyms, had to limit their capacity to promote social distancing. If any government pandemic orders impacted your business, you’re likely eligible.
You may also qualify for the ERTC under the Gross Receipts Test. This test examines whether you experienced significant declines in gross receipts — all receipts of your business activity — during the pandemic.
- In 2020, a significant decline of at least 50% in any calendar quarter relative to the same quarter in 2019.
- In 2021, a significant decline of at least 20% in a calendar quarter up to September 30, 2021, compared to the same quarter in 2019.
How to Claim the ERTC
After determining whether your business qualifies for the ERTC, understand where to claim this credit.
Eligible employers must claim the ERTC on their federal payroll tax returns, Form 941. Because you are claiming a credit for 2020 or 2021, don’t simply add this credit to your 2023 tax returns. Instead, you’ll need to file an amended payroll tax return, Form 941-X, for the relevant tax seasons.
Understanding ERTC Eligible Wages
Small and large businesses are eligible for different credits under the ERTC. As such, you should also determine whether your business met the definition of a small or large business in 2020 and 2021.
In 2020, small businesses under the ERTC had an average of 100 or fewer full-time employees. In 2021, small businesses had an average of 500 or fewer full-time employees.
Eligible wages for small employers include all the wages and health insurance benefits the employer paid during the designated time period. Meanwhile, large businesses can only claim the ERTC for employees who were not providing services due to the pandemic.
If you have already requested PPP loan forgiveness for certain wages, you cannot also claim those wages under the ERTC.
Seek the Assistance of a Qualified Tax Attorney
Adequate ERTC tax planning involves thoroughly understanding your eligibility for this tax credit, how to calculate eligible wages, and where to file. If you don’t feel confident claiming the ERTC or simply don’t have time to figure it out on your own, rely on an experienced tax attorney to assist you.
The ERTC refund recovery lawyers at Dayes Law Firm can help you file for this tax credit. Call us today at (800) 503-2000 or fill out our online form for a free consultation.