The Employee Retention Tax Credit (ERTC) was introduced as a part of the CARES Act to assist businesses in managing the financial burden brought on by the COVID-19 pandemic. Its goal is to encourage businesses to keep employees on their payrolls, even in the face of substantial economic hardship. While this tax credit provides significant relief, it also comes with its complexities. To better understand ERTC, below are some frequently asked questions.
What is the Employee Retention Tax Credit?
The ERTC is a refundable tax credit available to businesses that have been financially impacted by COVID-19. It provides a credit for qualified wages paid to employees during the pandemic.
Who is eligible for the Employee Retention Tax Credit?
Both large and small businesses that continued to pay their employees during COVID-19 related closures or demonstrated a significant decline in gross receipts are eligible for ERTC.
Will the ERTC impact my other relief funds?
It is important to note that if a business receives a PPP loan, they are ineligible to claim the ERTC on wages that are paid for by the PPP loan. However, they may still be eligible to claim the ERTC for other wages.
How can businesses apply for the ERTC?
Businesses can claim the Employee Retention Tax Credit on their quarterly employment tax returns, specifically on Form 941.
What are “qualified wages”?
‘Qualified wages’ are the wages that businesses pay their employees while they are not working due to COVID-19-related circumstances.
Employee Retention Tax Credit vs. PPP Loan
The ERTC is a refundable tax credit while the PPP loan is a forgivable loan. Both aim to ease the financial burden for businesses during the pandemic. However, if a business receives a PPP loan, the wages paid with those funds cannot be considered for ERTC.
- Ensure you meet the eligibility criteria for ERTC.
- Identify the qualified wages in your financial reports.
- Complete Form 941 and claim your ERTC on your next quarterly employment tax return.
Frequently Asked Questions
Can I take advantage of both the PPP and ERTC?
Yes, but not simultaneously for the same wages. Wages paid with PPP loan funds cannot be used towards the ERTC.
How much can I receive from the ERTC?
The credit is a percentage of ‘qualified wages’ up to a certain maximum per employee. The exact amount varies depending on the calendar quarter.
Is the ERTC available to self-employed individuals?
No, self-employed individuals are not eligible for the Employee Retention Tax Credit. It is primarily designed for businesses that have paid wages to employees during the pandemic.
Can non-profits take advantage of the ERTC?
Yes, tax-exempt organizations affected by the COVID-19 pandemic are eligible for the ERTC.
The Employee Retention Tax Credit provides substantial financial relief for businesses amidst the COVID-19 pandemic. Understanding the basic ins and outs of ERTC is essential for reaping its maximum benefits.