With many American businesses around the country struggling due to the COVID-19 pandemic, the U.S. government responded by passing multiple stimulus packages and tax credits throughout 2020 and now into 2021. One essential tax credit businesses should be aware of is the Employee Retention Tax Credit (ERTC) which has now been extended through 2021 at a potential value of up to $33,000 per employee.
The Consolidated Appropriations Act of 2021, was signed into law on December 27, 2020. Among many changes and updates to the prior relief legislation for COVID-19, this law clarifies and expands the Employee Retention Tax Credit (ERTC) that was created by the CARES Act established in March of 2020. One of the bigger changes in the law is that the Employee Retention Tax Credit (ERTC) is now available for employers who previously received, or will receive, a Paycheck Protection Program(PPP) loan. This change in the law provides significant benefits to employers, helping them during the economic disruptions stemming from the pandemic of COVID-19. And The American Rescue Plan Act, signed into law by President Biden in March, 2021, extends the credit, which had been set to expire in June, 2020, to all four quarters of 2021.
The Employee Retention Tax Credit (ERTC), another portion of the CARES Act, was designed to incentivize businesses to keep employees on their payroll during the COVID-19 pandemic.
Eligibility Requirements 2020
Businesses with operations that were either fully or partially suspended by a COVID-19 governmental order during the period the order is in force; or gross receipts were less than 50% of gross receipts for the same quarter in 2019. Businesses that were not in existence in 2019 could use a comparison to 2020 for purposes of the credit.
Eligibility Requirements 2021
Beginning January 1, 2021, the credit will be available to businesses with operations that are either fully or partially suspended by a COVID-19 governmental order during the period the order is in force; or gross receipts are reduced by at least 20% (in other words, the receipts were less than 80% of gross receipts) for the same quarter in 2019. Businesses that were not in existence in 2019 may use a comparison to 2020 for purposes of the credit.
How Much is the Tax Credit Worth?
2020 Credit: for wages paid after March 12, 2020, and before January 1, 2021, the ERTC can be applied to 50% of qualifying wages up to $10,000. Meaning a maximum of $5,000 per employee could be credited back to your company if it qualifies.
2021 Credit: for wages paid after January 1, 2021, and before January 1, 2022, the ERTC can be applied to 70% of qualifying wages of up to $10,000 per quarter. Meaning companies could receive a maximum of $28,000 per employee through December 31, 2021. The total combined maximum credit for both 2020 and 2021 can by up to $33,000 per employee.
How to Claim the Credit?
Eligible employers can report wages and related health insurance costs for each quarter on their quarterly employment tax returns via a Form 941 beginning with the second quarter of 2020. Additionally, if a company’s employment tax deposits do not cover the credit cost, that employer can receive a payment in advance from the IRS by submitting a Form 7200. This means potentially having the ability to get the tax credit back early in the form of a check from the IRS.
If you believe your Company may be eligible for the ERTC, talk to Tax Point Advisors immediately to see if they can take advantage of 2020 and 2021 credits. Tax Point Advisors works with taxpayers across the U.S. to determine credit eligibility and can handle all aspects of the documentation and application process.
Determine and document if the company is an eligible employer
Calculation of credits
Compile all required documentation
Preparation of required forms
Coordination with a taxpayer’s payroll processing company