The Employee Retention Credit (ERTC) is a refundable tax credit that forgives payroll taxes that your business pays. It was created by the CARES Act in March 2020 to help keep businesses operational and employees on the job during COVID-19-related shutdowns and restrictions.
The ERTC applies to wages paid to your qualifying employees. LLC owners and Schedule C self-employed individuals are not eligible to receive the credit.
What is the ERTC?
The Employee Retention Credit is a refundable payroll tax credit for businesses that experienced decreased revenue due to COVID-19. It is worth a percentage of the first $10,000 in qualified wages and health care expenses paid to each employee during each impacted quarter. The IRS issued several notices in August 2021 clarifying the eligibility requirements, interaction with other deferral programs and documentation requirements needed to claim the ERTC.
This is a little-known government aid program that could be a huge boon for eligible small business owners. If your business lost significant revenue during the pandemic, you should consider whether or not you qualify for the ERTC. If you do, it’s a good idea to act now before the end of the year. The sooner you apply, the sooner you’ll receive your money back from the IRS.
How does the ERTC work?
The ERTC is designed to essentially reward and reimburse business owners for keeping their staff on payrolls during the COVID-19 pandemic. The program gives businesses a refundable tax credit equal to the amount of qualified wages paid to employees, up to $10,000 per employee each quarter.
Eligible small businesses are those that had to partially or fully shut down during the pandemic and/or suffered a reduction in gross receipts, as determined by their local government. The CARES act allows more businesses to qualify for the ERTC than before.
The process of applying for the ERTC can be complicated, with rules and regulations to navigate, calculations to make, and changes to keep track of. That’s why our experts at KBKG are here to help. We can analyze your situation, determine whether you are eligible for the ERTC, and help you file your claim.
What are the requirements to claim the ERTC?
The small business employee retention credit is designed to help small business owners keep paying their employees during the COVID-19 pandemic. However, there are a lot of rules and regulations that apply when filing for the credit. It’s important to work with a professional service like ERC Assistant to make sure you’re getting the most out of your credit.
To be eligible for the ERTC, a business must have experienced a significant decline in gross receipts. This reduction can be measured by a 20% decrease in gross receipts during Q1, Q2, or Q3 of 2021 compared to the same quarter of 2019.
In addition, a business must be an eligible employer. This means that it must be a small business, and it must have received a PPP loan.
Can I claim the ERTC if I took a PPP loan?
During the COVID-19 pandemic, millions of small businesses struggled with lost revenue and staff shortages. The ERTC was created to help these businesses by providing cash refunds.
To qualify for the credit, a business must have experienced a shutdown or reduction in gross receipts during the pandemic. This can be a temporary or permanent shutdown.
Loan forgiveness is based on the business maintaining or quickly rehiring employees and continuing to pay existing compensation levels. Therefore, if an employee is unable or unwilling to return to work, it is recommended that the employer document this in writing and keep the documentation for PPP loan forgiveness purposes. ERC Today assesses the eligibility of each client, completes a comprehensive analysis and offers guidance on the claiming process and documentation, and provides specific program expertise that a regular CPA or payroll processor may not be well-versed in.
Will the ERTC be extended?
The ERTC, created by the Coronavirus Aid, Relief and Economic Security Act of 2020, was meant to reward and reimburse businesses for keeping their doors open during the COVID-19 pandemic. While it’s too early to say if the credit will be extended beyond 2024, many small business experts don’t think so.
The Infrastructure Investment and Jobs Act of 2021 accelerated the end date of the ERTC to Oct. 1 of this year (except for wages paid by recovery startup businesses). That means that if you were expecting the credit but were not eligible, you will need to amend your tax returns.
It’s important that you determine eligibility ASAP and locate any necessary documentation. Amended tax returns can take 90 to 120 days to process, so the sooner you submit your amended return, the faster you’ll receive these vital funds.