Employee Retention Tax Credits
The Employee Retention Tax Credit (ERTC) is an incentive originally created within the CARES Act intended to encourage employers to keep employees on their payroll as they navigated the effects of COVID. The Consolidated Appropriations Act provided a modification allowing eligible employers to claim the ERTC, even if they received a PPP loan.
The ERTC was initially extended to the end of 2021, however the Infrastructure and Investment Jobs Act repealed Q4 which resulted in the credit ending on September 30, 2021.
Are You Eligible?
An eligible employer is an employer that actively carried on a trade or business during 2020 or 2021, including tax-exempt organizations, and meets either of these two tests:
1. Government Order Test
An employer that experienced a calendar quarter “in which the operation of the trade or business is fully or partially suspended during the calendar quarter due to order from an appropriate government authority limiting commerce, travel or group meetings (for commercial, social, religious or other purposes) due to COVID-19.”
2. Reduced Gross Receipts Test
An employer that experienced a significant decline in gross receipts. Defined in the following ways:
- For 2021, a decline in gross receipts of at least 20 percent in any calendar quarter through September 30, 2021 compared to the same calendar quarter in 2019.
- If this test is failed, a special rule for 2021 allows the eligible employer to use the gross receipts of the immediate prior quarter compared to the same quarter in 2019 to determine a decline of greater than 20 percent.
- For 2020, a significant decline in gross receipts is a decline of at least 50 percent in any calendar quarter in 2020 when compared to the same calendar quarter in 2019.
COMMON MISCONCEPTIONS
- Were you told you had too many employees to be considered an eligible employer?
- Were you told you can’t receive any benefit because you are considered a large employer under the controlled group rules?
How is it Calculated?
In 2021, eligible wages paid to a qualifying employee may be used to calculate the ERTC (capped at $10,000 per quarter). In other words, the employer is allowed a maximum $7,000 ($10,000 x 70 percent) credit per employee for each calendar quarter in which eligible wages were paid through September 30, 2021.
Eligible wages used to determine the ERTC shall not be used for purposes of other tax credits and PPP loan forgiveness.
Contact us today and let us help you determine your eligibility and credit amount.