The Employee Retention Tax Credit (ERTC) is a government provision that provides a relief to businesses suffering due to the COVID-19 pandemic. By properly utilizing the ERTC, businesses can not only survive but also prosper despite the trying times. Here are some of the top ways to effectively benefit from the ERTC.
Understanding the ERTC
The ERTC was first introduced as part of the CARES Act in 2020, and has since been expanded and extended. In essence, it allows for a refundable tax credit against certain employment taxes equal to up to 70% of the qualified wages an eligible employer pays to employees, incentivizing employers to keep workers on their payroll.
Who is Eligible?
To claim the ERTC, employers must either have had their operations fully or partially suspended due to orders from a governmental authority related to COVID-19, or have experienced a significant decline in gross receipts. Additionally, businesses can claim for all employees if they have up to 500 employees.
Claiming the ERTC Effectively
Monitor legislative changes
Legislative changes can affect the rules for ERTC, its benefits, and eligibility criteria. Therefore, businesses must stay updated to utilize the credit effectively.
Keep proper documentation
Ensuring your records are in order is crucial for claiming ERTC. Employers should document their eligibility and how they calculated the credit to avoid issues during an IRS audit.
Maximizing the Impact of ERTC
Coordinate with PPP loans
While initially businesses could not take advantage of both the Paycheck Protection Program (PPP) loans and the ERTC, subsequent legislation removed this restriction. Now, employers can benefit from both programs, but careful coordination is needed to avoid double-dipping.
Take advantage of employee retention
By utilizing the ERTC, businesses can retain employees, helping them to avoid the costs of hiring and training new staff once the economy recovers.
Frequently Asked Questions
Are all businesses eligible for ERTC?
No, eligibility for the ERTC depends on a few factors including whether businesses experienced a significant decline in gross receipts or had operations fully or partially suspended due to government orders.
Can a business claim the ERTC if it received a PPP loan?
Yes, businesses that received a PPP loan can still claim the ERTC, but the same wages cannot be counted for both benefits.
What records should businesses keep when claiming the ERTC?
Businesses should document their eligibility for the ERTC and how they calculated the credit. This typically includes accounting records, bank statements, and payroll and tax documents.
In conclusion, the ERTC is a valuable resource that can help businesses weather the COVID-19 pandemic. With careful planning and strategic use, it can maximize its benefits, contributing to the long-term survival and success of companies during this challenging period.