The Employee Retention Tax Credit (ERTC) is a tax credit that can help employers who operated during the pandemic in 2020 and 2021 reclaim some benefits from wages paid during qualifying quarters. The government claims that the ERTC stimulates economic growth, but what are the real benefits of the ERTC?
What Is the ERTC?
The Employee Retention Tax Credit is a tax credit certain businesses can claim to receive up to $26,000 per employee retained on the payroll through qualifying quarters of the pandemic. To be eligible for the ERTC, your business must have:
- Been fully or partially shut down by a government order during qualifying quarters of 2020 or 2021, OR
- Earned 50% less in gross receipts in a quarter of 2020 compared to the same quarter in 2019 (to claim the ERTC for 2020), OR
- Earned 80% or less in gross receipts in a quarter of 2021 compared to the same quarter in 2019 (to claim the ERTC for 2021)
Which employees qualify for you to claim the ERTC? If you have a small business of 100 or fewer full-time employees, you can claim the credit for all employees, whether they were providing service or stuck at home due to a shutdown.
If you ran a medium-sized business with over 100 qualifying employees, you may only claim the credit for full-time employees you paid if they weren’t providing service due to a shutdown or reduced revenue. You could not claim the credit for full-time employees who were actively working.
Other qualifications may affect newer businesses that opened during the pandemic, as well as larger companies with more than 500 employees. Additionally, businesses that also claimed a Paycheck Protection Program (PPP) loan can claim the ERTC, but not on the same wages paid with PPP funds.
How Did the Employee Retention Tax Credit Improve the Economy During the Pandemic?
Many businesses might have shuttered permanently during the pandemic without assistance programs like PPP loans and the ERTC. Additionally, employees who continued to earn an income or unemployment insurance payments ($600 per week) through the CARES Act had money available to pay rent, bills, and other expenses.
Employees who earned an income during a shutdown could feel more secure in spending on essentials like groceries and household goods, as well as comfort items like digital movie rentals, to-go orders from local restaurants, and new technology upgrades for their homes. These extra purchases that they may have normally avoided before the pandemic kept many businesses afloat during tough times.
The ERTC reimburses businesses for wages paid and might also cover a portion of employer-provided health insurance expenses. A knowledgeable tax attorney can describe more about how the ERTC stimulates economic growth and how you can use the credit to improve your business.
How Long Do You Have To Claim the ERTC for Your Business Tax Returns?
To claim the ERTC retroactively, you must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. You have three years from the date that your original tax returns were due to file your adjusted tax returns and claim the credit.
For example, if your original 2020 tax returns were due April 15, 2021, and you didn’t claim the ERTC on your original return, your deadline to file an adjusted tax return to claim the credit is due April 15, 2024.
Contact Dayes Law Firm for More Information About the ERTC
The ERTC stimulates economic growth for many small- and medium-sized businesses. For more information about claiming the ERTC for your business, contact our team at Dayes Law Firm. Call us today at (800) 503-2000 or fill out our contact form to schedule a consultation with an experienced business tax attorney.