The Employee Retention Tax Credit was rolled out as part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act. It was enacted to encourage employers to retain employees throughout the Coronavirus pandemic. As our country begins to understand the full scope of COVID-19, this credit could allow employers to keep employees on their payroll and keep their doors open.
What is the Employee Retention Tax Credit?
The tax credit is a refundable tax credit that is meant to incentivize employers to keep employees on their payroll. For all businesses working to keep their staff on the payroll, 50% of qualified wages must be paid to the employees from March 12, 2020, to January 1, 2021. Including credit for qualified health plan expenses.
An employer can claim up to $10,000 in wages paid if the employer’s business is entirely or partially suspended because of coronavirus and if their gross receipts also decrease by more than 50%.
What makes someone eligible for the Employee Retention Tax Credit?
The ERTC is available all employers, including tax-exempt organizations. The only organizations that are not eligible for the ERTC are state and local governments and their instrumentalities and any small business that has taken a Small Business Loan. Those who are self-employed are also not eligible for the ERTC.
An employer must be a business that has been fully or partially suspended by the coronavirus government orders, to qualify for the tax credit. If they do not meet that requirement, they may also be eligible if the employer has gross receipts below 50% of the same quarter in 2019. If the employer’s gross receipts go beyond 80%, they are no longer eligible for the tax credit after the quarter ends.
Employers with fewer than 100 employees may receive a tax credit for all employees. Those with more than 100 employees can receive credit for the employees who are being paid but are not working due to coronavirus cutbacks.
How can I claim the Employee Retention Tax Credit?
The ERTC cannot be combined with any other tax credit. If you are counting wages toward the Families First Coronavirus Relief Act tax credit, you cannot count those same wages toward the ERTC.
To begin your ERTC claim, employers should report their total qualified wages and other credits quarterly. Form 941 allows businesses to report their income, along with their Social Security and Medicare taxes withheld from employee’s paychecks.
If an employer reduces the amount of payroll taxes they withhold from employee’s wages, they can be immediately reimbursed.
As businesses continue to adjust their business plans in the face of coronavirus, there are many ways they can find relief through various programs. The ERTC is a good option for employers who are trying to keep their employees on their payroll. Visit our COVID-19 resource page for more information on programs that can benefit your business.