EMPLOYEE RETENTION TAX CREDIT (ERTC)
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EMPLOYEE RETENTION TAX CREDIT (ERTC)
The Employee Retention Tax Credit is a program that offers tax relief to businesses who retain their employees for a certain period of time. This credit can be used to offset the cost of wages, bonuses, and other benefits offered to employees.
The CARES Act brought about the Employee Retention Tax Credit (ERTC) to help businesses keep their doors open and support employees. This refundable credit offers employers a break on payroll costs from March 13, 2020 through September 30, 2021 – whether or not they’ve taken out PPP loans during this time.
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WHO IS ELIGIBLE FOR EMPLOYEE RETENTION TAX CREDIT?
The Employee Retention Tax Credit (ERTC) is a new tax credit enacted by the CARES Act to help businesses cope with the economic impacts of COVID-19. This tax credit can provide up to $5,000 in refundable credits for each eligible worker, covering 50% of wages paid between March 12, 2020 and January 1, 2021.
Employers that are eligible for this tax credit must have experienced either a full or partial suspension of their operations due to governmental orders related to COVID-19, or a significant decline in gross receipts. Specifically, employers must have experienced at least a 20 percent decline in gross receipts for the same quarter in 2019 when compared to the same quarter in 2020.
To qualify as an employee under the law, workers must have been employed on March 12, 2020 and still be employed on January 1, 2021. In addition to employees that were part of businesses before the pandemic hit such as full time employee’s seasonal employees and part-time employees also qualify. There are additional qualifying criteria for self-employed individuals working outside of an employer setting who may be eligible.
Employers can receive credits up to $5,000 per employee for wages paid during any period between March 12, 2020 and January 1, 2021 regardless of how long they worked during that period. The maximum amount credited per employee is limited to $10k for qualified wages paid in 2020 but no more than $5k can be claimed through the ERTC program. Employers are not eligible for more than 500 full-time equivalent employees so if you exceed that amount you will no longer be eligible.
In addition, employers cannot take advantage of both the Employee Retention Tax Credit and other tax credits such as those provided by the Families First Coronavirus Response Act (FFCRA). However individuals who received payment or sick leave from FFCRA may still be eligible for ERTC benefits depending on their individual circumstances.
The Employee Retention Tax Credit is intended to help businesses retain their workforce despite challenging economic times caused by COVID-19 restrictions and closures. Knowing what types of workers qualify, which wages are applicable and understanding how it interacts with other government provisions can help business owners make informed decisions about whether or not it makes sense for them to pursue this particular form of assistance.
This year has brought an unprecedented array of supply chain disruptions, leading to disruption and delays across industries. Businesses have had their operations severely limited due to the need for additional sanitization measures; staff take time out of shifts in order to clean surfaces more thoroughly than before, as well as being required by federal or local government mandates at times fully shutting down services until further notice. With limits on how many people can be present within a single room or building all at once – not forgetting other relevant restrictions like capacity lockdown orders and event cancellations keeping professionals from normal networking opportunities- this crisis is preventing entire teams from functioning normally while they struggle with reduced working hours, altered service offerings along side delayed projects caused directly by Covid related constraints throughout 2020/2021 so far.
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HOW IS EMPLOYEE RETENTION TAX CREDIT (ERTC) CALCULATED?
The Employee Retention Tax Credit (ERTC) is a refundable tax credit available to qualifying employers that have been affected by the COVID-19 pandemic. The credit provides an incentive for employers to keep their employees on the payroll and reduces their financial burden while they face decreased demand and other disruptions resulting from the pandemic.
To qualify for the ERTC, employers must meet certain criteria. Qualifying employers are those whose businesses have been fully or partially suspended due to government orders related to COVID-19, or whose gross receipts for any quarter in 2020 are at least 50% lower compared to the same quarter in 2019. Other eligibility criteria may apply depending on the size of the employer’s business as well as other factors.
Once an employer has determined that it is eligible for the ERTC, it can begin calculating the amount of the credit it will receive. The amount of the credit depends on several factors including: wages paid during a given period; employee hours worked during a given period; total number of employees employed by the employer; and whether wages paid are subject to Social Security taxes.
The amount of credits an employer can claim is calculated differently depending on whether its average number of full-time employees exceeds 100 or not. If an employer has more than 100 full-time employees, then it must subtract 80% of its total wages paid between March 13, 2020 and January 1, 2021 from wages paid from January 1 through December 31, 2020 in order to calculate its ERTC eligibility. On the other hand if an employer had fewer than 100 full-time employees then only half (50%) of its total wage expenses need be subtracted in order to calculate its eligibility for credits. This calculation does not include health plan payments which also factor into determining eligibility for ERTC benefits.
In addition to these calculations, employers must also consider how much money they can receive through this credit, which is limited based upon certain criteria such as whether all qualified wages were paid after March 12, 2020 or if any qualified wages were paid prior to that date. For businesses with more than 100 full-time employees who pay all their qualified wages after March 12th, they can only receive up to $7000 per employee annually ($4000 maximum per quarter). For businesses with fewer than 100 full time employees who pay all their qualified wages after March 12th they can receive up to $5000 per employee annually ($2500 maximum per quarter). Employers also have additional restrictions regarding how much they can offset against payroll taxes with this credit – so it is important that they understand all applicable limits before claiming any benefit through this program.
Overall understanding how Employee Retention Tax Credit (ERTC) is calculated will help employers maximize their benefit when claiming these credits – allowing them to take advantage of these incentives offered by the federal government and reduce their financial burden during difficult times caused by COVID 19 pandemic.
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CAN I STILL RECEIVE THE ERTC IF I CLAIMED A PPP LOAN?
The answer to this question is: yes, you can still receive the Employee Retention Tax Credit (ERTC) if you have already claimed a Paycheck Protection Program (PPP) loan. This is due to the fact that both programs are designed to provide relief to businesses who have been financially impacted by the COVID-19 pandemic. The two programs are structured differently, and are not mutually exclusive.
The PPP loan is a forgivable loan provided by the Small Business Administration (SBA). It is intended to help employers cover payroll costs, rent and other expenses during this difficult period of time. The PPP can be used for qualified expenses up to 2.5 times your average monthly payroll costs. In order to qualify for a PPP loan, an employer must demonstrate that they have suffered economic hardship due to the pandemic and employ fewer than 500 employees at any physical location or in any affiliate of the applicant business.
The ERTC is a refundable tax credit provided by the Internal Revenue Service (IRS). It was designed to incentivize companies from laying off or furloughing employees as a result of reduced revenue due to Covid-19. It provides eligible employers with a credit against their quarterly employment taxes equal to 50% of wages paid after March 12, 2020, and before January 1, 2021, up to $10,000 per employee for wages paid for each quarter of 2020 and 2021 calendar year. To qualify for ERTC you must demonstrate that your gross receipts have declined significantly during one quarter compared with the same quarter in 2019 or the same quarter in 2020 compared with the previous quarter in 2020.
It should be noted that while it is possible to receive both benefits, there may be certain restrictions on how the funds can be used when receiving them concurrently. For instance, if an employer has received PPP funding and wishes to also claim ERTC credits they cannot apply those credits towards any payroll expenses which were covered by the PPP loan unless they repay their entire PPP loan balance prior submitting their ERTC application or withdraw from participating in the program altogether before submitting their application. Additionally, there may be some wages/employees which cannot be claimed under both programs simultaneously so it is important for employers who wish to take advantage of both incentives do so carefully within these parameters laid out by both agencies.
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FOR DETERMINING ELIGIBLE WAGES UNDER THE ERTC?
- March 13, 2020 – December 31, 2020 – CARES Act
- January 1, 2021 – June 30, 2021 – Consolidated Appropriations Act
- July 1, 2021 – September 30, 2021 – American Rescue Plan Act
- July 1, 2021 – December 31, 2021 – Recovery Startup Business
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DO I HAVE TO PAY BACK THE EMPLOYEE RETENTION TAX CREDIT (ERTC)?
The Employee Retention Tax Credit (ERTC) is a refundable credit that employers can claim against certain employment taxes equal to 50 percent of the qualified wages they pay to employees. It was included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) as part of an effort to help businesses keep their employees on payroll.
Whether or not you have to pay back the ERTC depends on your business’s specific situation and is determined on a case-by-case basis. The IRS has stated that employers must repay all or part of an ERTC if:
- They receive a loan under the Paycheck Protection Program (PPP)
- They make a recoupment of expenses related to the credit on their return.
- They fail to provide sufficient documentation or evidence such as payroll records and other required information
- They don’t follow all the eligibility requirements for claiming the ERTC, including those related to wages paid, employee hours worked.
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