By Les July 11, 2022

Definition

The Employee Retention Tax Credit is a refundable federal income tax credit that most businesses will qualify for. Business affected negatively due to the impact of Corona Virus mandates qualify even if they may of earned more during this period.

ERTC – Amended and Extended

Most Businesses don’t know that The Taxpayers’ Relief for Unmasking Corona Virus Emergency Act applies to them. Enacted December 28, 2020, amended and extended the Employer Retention Credit under Section 2301(a)(1) of the CARES Act.

On November 15, 2020, the IRS issued guidance regarding the retroactivity of the Employee Retention Tax Credit. This allows employers to pay their employees the wages they earned before October 1, 2021. This is even though they cannot legally do so until October 2, 2021. An employer can also get an advance payment from the IRS.

Workers employed before March 13, 2020 with pay checks deposited after March 13, 2020 qualify. For those employees, employers can claim a 50% wage deduction for each employee up to $10,000. If the employer pays wages above $10,00, then the employer will pay taxes on the wages paid.

Company Qualifications

A company suffering a significant decline in gross revenues of at least 75% qualifies. If the company’s revenue comes from one or more sources of income and if the following conditions apply:

• the company had gross revenues of $1 million or more in 2019 and gross revenues less than $500,000 in 2020

• the company had net earnings in 2019 of $50,000 or more and net earnings in 2020 less than $10,000

For the purpose of calculating the tax credit: under section 280F(b)(1)(A), the term “qualified wages” means wages paid to an employee for services performed before January 1, 2020. These wages must be paid at least 30 days after the date on which the services were rendered.

Claiming the credit

In order to claim the new Employee Retention Tax Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns. This will be Form 941 for most employers, beginning with the second quarter. The credit applies against the employer’s share of Social Security tax but the excess is refundable under normal procedures.

Employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited. This is including federal income tax withholding, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty, taking into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act.

Eligible employers can also request an advance of the Employee Retention Tax Credit by submitting Form 7200 or simply go to ERTCsubmissions.com.

Source: irs.gov