Hi, I’m Bette Hochberger, CPA, CGMA, and for today’s #businessquickie, we are doing a brief overview of the Employee Retention Tax Credit (ERTC). According to irs.gov, the employee retention tax credit is available as a refundable payroll tax credit of up to $5,000 for full-time employees retained from March 13, 2020, to December 31, 2020, and up to $21,000 for full-time employees retained from January 1, 2021, to October 1, 2021. But if you are a recovery startup business, you may be able to claim up to $28,000 for wages paid to full-time employees from January 1, 2021, to January 1, 2022.
The amount of credit the employer ends up with is based on a percentage of qualified wages. So, this sounds fantastic, but who qualifies?
Qualifications for ERTC
- To qualify for the employee retention tax credit in 2020, you must be a private-sector business or a tax-exempt organization that experienced a full or partial shutdown due to COVID-19 and have seen a gross receipts decline of more than 50% during a 2020 quarter compared to the same quarter of 2019. (c)
- To qualify for the employee retention tax credit in 2021, you must be a private-sector business or a tax-exempt organization that experienced a full or partial shutdown due to COVID-19 and have seen a gross receipts decline of more than 80% during a 2021 quarter compared to the same quarter of 2019. (b)
You can retroactively claim this credit if you did not claim it during the time period of your gross receipt decline by filing Form-941-X. However, the IRS will test the employer’s patience since the IRS is backed up in processing, well, everything. There are also stipulations regarding the kind of employee that qualifies. To qualify for the Employee Retention Tax Credit, the employee in question must be full-time, meaning that they worked at least 30 hours a week.
What are Qualified Wages?
Now, there are some differences between “qualified wages” for eligible employers with more than a certain amount of full-time employees and “qualified wages” for employers with less than that amount, and it depends on the year.
For 2020 (a):
- If you had more than 100 full-time employees, then qualified wages are wages paid to an employee when they were not working (due to government mandates or a significant decline of gross receipts).
- If you have less than 100 full-time employees, then qualified wages are wages paid to any employee, working or not, due to the same reasons listed earlier.
For 2021 (b):
- The only difference is the number of employees changes from 100 full-time employees to 500 full-time employees.
When is the due date for claiming the Employee Retention Tax Credit?
The latest you can claim the employee retention tax credit is with your quarterly tax filing, due July 31, October 31, and December 31, 2021 (b). So, if you haven’t begun this process, you need to, right now.
How do I apply for the ERTC?
Before applying, make sure you meet the qualifications and gather all relevant payroll information from the past two years. Then, your CPA (or business advisor) should prepare the form and submit it to the IRS before the deadline.
Like I said before, this was a brief overview, so if you have any other questions that I didn’t answer, be sure to check out the IRS website for more information. Then, reach out to your CPA to get the ball rolling. See you next time! Thanks.