The Employee Retention Tax Credit (ERTC) is a provision of the CARES Act, designed to incentivize small businesses to keep employees on their payroll during the Covid-19 crisis. The ERTC is a refundable tax credit against certain employment taxes equal to 50% of qualified wages that an Eligible Employer pays to employees after March 12, 2020, and before January 1, 2021. This article serves as a comprehensive guide, providing strategies and tactics that businesses can use to maximize ERTC benefits.
Understanding the Employee Retention Tax Credit
The ERTC is a temporary relief measure that helps businesses maintain their workforces during the economic turmoil brought about by the Covid-19 pandemic. The credit applies to qualified wages, which includes allocable qualified health plan expenses and certain collectively bargained benefits.
Who is eligible for ERTC?
Both private businesses and tax-exempt organizations can claim the Employee Retention Tax Credit if they meet specific eligibility criteria. These include suffering significant declines in gross receipts or being fully or partially suspended by government order due to Covid-19.
Maximizing Your ERTC Benefits
Claiming the credit
The ERTC is claimed on the employer’s federal employment tax return, usually by adjusting employment tax liability for the quarter. This helps to reduce the amount that businesses need to deposit and pay to the IRS.
Deferral of employment tax deposits
Eligible employers can defer the deposit and payment of the employer’s share of social security taxes. The delay, combined with the ERTC, can provide substantial relief to businesses during challenging economic times.
Commonly Asked Questions
Can I claim the ERTC if I received a PPP loan?
Previously, businesses that received a Paycheck Protection Program loan could not claim the ERTC. However, the Consolidated Appropriations Act, 2021 changed that rule. Now, employers can claim the ERTC, even if they received a PPP loan.
How is the maximum amount of ERTC determined?
The maximum amount of credit for an eligible employer for qualified wages paid to any employee is $10,000 per quarter.
Understanding and leveraging the ERTC can provide significant financial relief for businesses feeling the stress of the Covid-19 pandemic. By taking advantage of this tax credit, businesses can keep their employees on payroll and adapt to the changing economic landscape.
