Employee Retention Tax Credit (ERTC), a component of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is intended to assist firms in keeping employees on the payroll during the COVID-19 pandemic's economic downturn. The ERTC, to be exact, is a fully refundable credit equal to 50% of qualified earnings, up to $10,000 in salary per employee. Continue reading if you want more details on the fully refundable tax credit. Business owners' financial concerns are a common topic for many financial consultants. This blog will guide you more about ERTC Funding. ERC Today is here to help with ERC and will also guide you through the filing process.
What Is Employee Retention Tax Credit?
The Employee Retention Tax Credit (ERTC), one of the relief measures included in the CARES Act, incentivizes small businesses to keep their staff members instead of furloughing or firing them. Employees who receive qualifying wages between March 12, 2020, and January 1, 2021, including qualifying health plan expenses, are entitled to a 50% credit. Since there is a $10,000 restriction on the total qualified earnings that you may claim, the maximum credit for each employee is $5,000.
The employer's part of payroll taxes that the ERTC covers is entirely refundable. The IRS has created a concept to let qualified firms get paid in advance for their credit. This is supposed to ease the liquidity worries that several firms that are ERTC claimants have.
Employers have until April 15, 2024, and April 15, 2025, respectively, to submit claims for the ERTC for 2020 and the credit for 2021.
The Employee Retention Tax Credit: Who Qualifies and Who Doesn't?
The ERTC is only accessible to a limited number of qualifying workers whose companies have been impacted by the coronavirus pandemic, in contrast to other, more generally applicable measures stated in the CARES Act. Apart from sole proprietors and government employers, they encompass most company categories.
As a qualifying employer, you can become eligible in one of two ways. The IRS website states that you must either:
- Due to a legislative decree about the coronavirus, you may entirely or partially suspend activities in 2020.
- Show a notable drop in revenue for a quarter in 2020. For a particular quarter's gross income to meet this condition, it must be less than 50% of its gross receipts from 2019.
All workers are eligible if a company has less than 100 personnel. Only those paid but not performing work because of coronavirus-related reductions are qualified if a company has more than 100 workers.
You should note that Paycheck Protection Program (PPP) loan recipients are not qualified for the Employee Retention Tax Credit. Additionally, companies cannot make two claims for their workers' pay regarding the Family and Medical Leave Act (FMLA) and the Work Opportunity Tax Credit.
What are some prevalent misconceptions concerning the ERTC?
Due to their misunderstanding of the admittedly complicated regulations governing who is and is not qualified, several small enterprises fail to take benefit of the ERTC.
1) No significant revenue decrease: Some firms that have not seen a considerable revenue decline may nevertheless be eligible for the employee retention tax credit.
2) Believing that an unimportant firm is ineligible: An organization need not be seen as "unimportant" to be eligible for the credit.
3) The notion that if a company has already received PPP funding, it cannot qualify for the ERTC. A company may still be eligible if it has received funds under the Paycheck Protection Program. The employer is permitted to make claims for qualified wages not paid for by payroll to be considered for PPP debt relief.
4) Does a company still qualify if it never shuts down? Even if an employer didn't shut down operations entirely during the epidemic, several ERTC program requirements might still allow them to be eligible for it. Small businesses that have to close their doors partially may file a claim. If a company can demonstrate a reduction in income even if it did not get a government order to complete, it may still be eligible.