The Employee Retention Tax Credit Explained

Are you a small business owner struggling to make ends meet during the pandemic?

The Employee Retention Tax Credit (ERTC) can help. The ERTC is a refundable tax credit designed specifically to assist businesses and their employees through this difficult time.

This credit allows you to claim up to 50% of the first $10,000 in wages per employee for 2020 and up to 70% of the first $10,000 per employee for the first three quarters of 2021.

Qualified wages include cash tips of $20 or more, as well as payments made to part-time employees.

You have until April 2024 to amend your 2020 tax filing and until April 2025 to amend your 2021 filing in order to apply for ERTC benefits, so don’t delay!

Keep reading on for more information from https://ertcexplained.net/ about how the ERTC works and how it could potentially benefit you.

What is the Employee Retention Tax Credit?

You can take advantage of the Employee Retention Tax Credit (ERTC) to help ease the financial burden of paying employees during government shutdowns. It’s a refundable tax credit that reduces what you owe the IRS!

The ERTC was introduced as part of the CARES Act in 2020 and updated in 2021. It is available for small businesses with 100 or fewer full-time monthly employees in 2019. Larger employers can claim it for wages paid to employees not working or for qualified health costs. Recovery startup businesses that opened after February 15, 2020, with annual gross receipts under $1 million are also eligible.

For tax year 2020, you can claim 50% of the first $10,000 in wages per employee up to $5,000. For 2021 quarters 1–3, you can claim 70% of $10k per quarter per employee up to a total of $21k. Qualified expenses such as rent may count toward PPP forgiveness up to 40%.

The ERTC is a refundable credit and doesn’t need to be paid back. Just file Form 941-X by April 2024 (2020 filing) or 2025 (2021 filing).

How the ERTC Works

The ERTC helps businesses incentivize keeping workers on payroll during difficult times, providing a refundable tax credit that can even exceed payroll taxes paid. It’s an attractive option for business owners.

1. Eligible employers can claim up to $21,000 per employee for the first three quarters of 2021.
2. Qualified wages vary based on the size and year of the business.
3. Businesses with 100 or fewer full-time monthly employees in 2019 qualify for ERTC in 2020, with larger employers able to claim credit for wages paid to employees not working or healthcare costs.
4. The ERC is a refundable tax credit and doesn’t need to be paid back; refunds are typically received within three to six months after filing Form 941-X.

How Much Money You Can Get

With ERTC, you can potentially receive up to $26,000 in credits per worker kept employed through 2020 and 2021. For tax year 2020, you can claim 50% of the first $10,000 in wages per employee, which amounts to $5,000.

Then for the first three quarters of 2021, you can claim 70% of the first $10,000 in wages per quarter for each employee — totaling up to $21,000. Health care expenses are also considered part of an employee’s wages.

To qualify for ERTC, you must be a small business with 100 or fewer employees in 2019 for 2020 and 500 or fewer employees for 2021. You must have also been impacted by a government-mandated lockdown or significant decline in revenue.

Determining Eligibility

To determine if your business is eligible for the Employee Retention Credit, consider whether you had fewer than 100 or 500 full-time employees in 2019 and if you were affected by a governmental shutdown or loss of revenue. If so, you may qualify for the ERC.

The amount depends on how much wages are paid to employees each quarter. For tax year 2020, up to $5,000 per employee can be claimed and up to $21,000 per employee can be claimed for 2021’s first 3 quarters.

If there was a significant decline in gross receipts compared to 2019, businesses may still qualify. Recovery startup businesses that opened after February 15th, 2020 with annual gross receipts under $1 million may also apply with a max of $50,000 per quarter.

Cash tips are included as qualified wages when calculating the credit, but self-employed freelancers and LLC owners do not qualify unless they are on the payroll and provide significant work for the business.

To Qualify

Eligibility for the ERTC requires businesses to have been impacted by a governmental lockdown or a significant drop in revenue. For tax year 2020, small businesses must have 100 or fewer full-time monthly employees in 2019. For 2021, it’s 500 or fewer.

To qualify for ERTC, they must also suffer a decline in receipts of less than 50% in 2020 and less than 80% in 2021 compared to 2019, or be a recovery startup business with gross receipts under $1 million opened after February 15th, 2020, and one W2 employee.

Cash tips are considered wages for ERC purposes. Part-time employees can also qualify if they meet certain criteria, and S-Corp/C-Corp owners may too depending on their involvement with the company.

Qualified Wages

You can get money back from the IRS for wages paid to your employees with the Employee Retention Credit.

Qualified wages vary based on the year and size of your business. In 2020, qualified wages are for businesses with 100 or fewer full-time employees. In 2021, qualified wages are for businesses with fewer than 500 full-time employees.

Cash tips greater than $20/month are included as qualified wages.

Wages of the owner or family members do not qualify.

If you had more than 100 full-time employees in 2020 or more than 500 full-time employees in 2021, qualifying wages are those paid to an employee while they were unable to work due to suspended operations or a substantial decline in revenue.

Conclusion

You can take advantage of the ERTC to reduce your payroll costs and help keep employees on staff during difficult times.

You must meet certain eligibility requirements and have experienced a significant decline in revenue or government-mandated lockdown.

If you qualify, you can get a refundable tax credit for up to 50% of the first $10,000 in wages per employee for 2020 and up to 70% of the first $10,000 per employee for 2021.

Lendio has an easy application process that’ll help make sure you get all the money you’re entitled to.

So don’t wait — check if you’re eligible today!