ERTC: Employee Retention Tax Credit Explained – What Does This Mean for Your Business?

By Les May 16, 2022

Photographer: BP Miller | Source: Unsplash

With so many new tax credits, grants, and incentives like The ERTC program available to businesses, it’s no wonder that so many small business owners are confused. As it is difficult to know which ones apply to their company. With so many programs vying for attention, it’s important that small business owners keep tabs on what makes sense for them and their company. Do you have the time and resources to create an effective plan and implement it? Do you know if your company is eligible for the program? These are just some of the questions you should ask before jumping on any new programs. If you answered yes to all of those questions, read on to learn more about the employee retention tax credit.

What Is the ERTC?

Business owners are eligible for a credit under the ERTC. This is starting on March 12, 2020, and before October 1, 2021, based on employee wages and health plan expenditures.

How Much is the ERTC?

The ERTC program is a refundable tax credit for business owners in 2020 and 2021. In 2020, a credit is available up to $5,000 per employee from 3/12/20-12/31/20 by an eligible employer. That is a potential of up to $5,000 per employee. In 2021 the ERC increased to $7,000 paid per employee per quarter for Q1, Q2, and Q3. That is a potential of up to $26,000 per employee.

Start-up businesses who began operations after February 15, 2020 can take a credit of up to $50,000 in both the third and fourth quarters of 2021. Doing this qualifies them for a maximum credit of $100,000.

What are the Eligibility Requirements for the Employee Retention Tax Credit?

In order to claim the ERTC funds, businesses must first determine if they are an eligible employer. An eligible employer is any business that carries on a trade or business during calendar year 2020, and either:

1) were fully or partially suspended by government order due to COVID-19 during any calendar quarter in 2020; OR

2) Experienced a significant decline in gross receipts during any calendar quarter in 2020.

A significant decline in gross receipts is defined as a decline of more than 50 percent. This is when comparing quarterly gross receipts in 2020 to the same quarter in 2019. If your business was not operational in 2019, compare quarterly 2020 gross receipts to the average quarterly receipts for 2019.

If your business meets one of the above criteria, you are an eligible employer. You can claim the ERTC credit for qualified wages paid after March 12, 2020, and before January 1, 2021.

When Can You Claim the Employee Retention Tax Credit?

By answering a few noninvasive questions, ERTC experts can determine if you are eligible for a no-strings-attached tax credit. You can be pre-qualified within 3 to 4 days without incurring any cost or obligation.

Key Takeaway

The employee retention tax credit is designed to encourage businesses to keep employees on the payroll due to the unprecedented effects of covid-19. All businesses that employ less than 50 employees and have a net profit of less than $50 million qualify. While the ERTC was created in the CARES act along with the PPP Loans – this is not a loan. There is no repayment. There are no restrictions for what recipients of the credit must use the funds. To see just how much your company qualifies for just fill in this simple form here.

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