What is the Employment Retention Tax Credit?
The Employee Retention Tax Credit (ERTC) is a refundable tax credit that rewards businesses for keeping employees on payroll during the pandemic. It extended until the end of the third quarter of 2021, September 30, 2021. (You can only receive the ERTC in the fourth quarter of 2021 if you qualify as a “recovery startup business” under Section 3134(c)(5) of the IRS Code.)
Eligible employers can claim the credit against the employer share of Social Security tax equal to 70% of the qualified wages they paid to employees after December 31, 2020, through September 30, 2021. Because qualified wages are limited to $10,000 per employee per calendar quarter in 2021, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $21,000 in 2021. The maximum ERTC amount available in 2020 is $5,000 per employee per year, bringing the total amount of available per employee would be a total of $26,000.
How Do I qualify for the Employment Retention Tax Credit?
There are three ways to qualify for the ERTC:
- Significant decline in quarterly gross receipts — 20% or more decline in 2021; 50% or more decline in 2020.
- Full or partial government shutdown — hindering more than a nominal portion of your operations; also consider your key vendors.
- Recovery startup — start a new trade or business after February 15, 2020 with average annual revenue < $1 million.
How do I claim the Employee Retention Tax Credit?
To claim the ERTC, eligible employers report their total qualified wages on their quarterly employment tax returns (Form 941). Employers can also request an advance of the employee retention credit by submitting Form 7200.
For quarters that are filed timely, include Form 941. For past quarters, file Form 941-X. For companies that use a third-party payroll provider, some coordination with the payroll provider may be necessary.
The IRS has extended the audit window for this tax credit. Documenting your eligibility, qualified wages, and calculation is important.
Can my business qualify for the ERTC if we received the PPP?
YES! Retroactive to the March 27, 2020, enactment of the CARES Act, if you received Paycheck Protection Program (PPP) loans, you can claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.
Does the Employee Retention Tax Credit apply to nonprofits?
Yes. Examples of nonprofit organizations that have already taken advantage of the credit are hospitals, schools, museums, performing arts centers, and churches
If I’m a large employer, is it still worth claiming the ERTC?
Yes. While the definition of qualified wages is limited for large employers, you can still take advantage of the ERTC if you paid employees that were either not working or were working reduced hours. Depending on the size of your company and the amount of qualified wages paid during the quarter, the ERTC can still be substantial.
For 2020, a large employer is more than 100 employees. For 2021, that threshold was increased to 500 employees.
Does the Employee Retention Tax Credit need to be repaid?
No, you do not have to repay the Employee Retention Tax Credit. However, if you receive an advance of the credits (Form 7200), you need to account for that amount when filing your federal employment tax return.
Why should I work with CORE?
CORE specializes in complex tax credits like the ERTC. As part of every engagement, we analyze your eligibility for both 2020 and 2021. We optimize your claim and help you remain compliant by preventing double-dipping with other tax credit programs. With every calculation, we include a formal tax opinion that documents your eligibility and qualified wages. We also include our Audit Defense Guarantee with ever project.
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