The Employee Retention Tax Credit (ERTC) is a pandemic relief measure designed specifically for businesses attempting to weather the devastating effects of the COVID-19 impact. This credit’s main objective is to encourage employers to retain staff despite the economic hardships brought about by the pandemic. Throughout this article, we’ll explore the dynamics of ERTC, how to utilize it, its benefits, and who can qualify.
Understanding Employee Retention Tax Credit
The ERTC is a fully refundable tax credit available to businesses that faced full or partial shutdown or saw a significant drop in gross receipts because of the pandemic. It’s part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, designed to supply much-needed economic relief to businesses and nonprofits.
Benefits of Utilizing ERTC
The Credit’s Range: Tax credits range up to $5,000 per employee in 2020 and $7,000 per employee per quarter in 2021.
Immediate Cash Flow: Eligible employers can get immediate access to the credit by reducing employment tax deposits they’re otherwise required to make. Additionally, if the employer’s tax deposit doesn’t cover the credit, they may receive an advance payment from the IRS.
Offsetting Operating Costs: The credit allows businesses to offset some operating expenses during turbulent times thereby potentially fostering business longevity.
Who Qualifies For ERTC?
Businesses, including tax-exempt organizations, that carry out trade or provide services within the United States are eligible for this credit. However, they must have experienced either an operation suspension due to government restrictions related to COVID-19 or a significant decline in gross receipts during a calendar quarter compared to the same quarter in 2019.
- Q: Can I claim ERTC if I receive a PPP loan?
- A: Yes, businesses can take advantage of both PPP loans and the ERTC; however, they can’t claim the ERTC on wages paid with the PPP loan if the loan is forgiven.
- Q: Can I claim the ERTC myself, or do I need an accountant?
- A: While the IRS offers guidance on claiming the ERTC, navigating the intricacies of tax laws may be challenging. Having a professional accountant can help ensure correct and optimal utilization of this credit.
- Q: How do I claim the ERTC?
- A: Eligible employers claim the credit on their federal employment tax returns, usually by adjusting employment tax deposits or requesting an advance of the credit using Form 7200.
In these trying times, valuable lifelines like the ERTC can serve to help businesses maintain their status quo, retain employees, and potentially even grow. By understanding the workings of this credit and utilizing it fully, struggling businesses have a fighting chance to rebound and thrive beyond the pandemic.