When surveyed, 21.6% of small businesses in the US said the pandemic had severely impacted their company. Fortunately, help is available.
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If your business meets the criteria set by the IRS, you might qualify for the Employee Retention Tax Credit (ERTC).
This cash relief is substantial; eligible companies can credit up to $26,000 per employee!
In this article, we’ll explain what ERTC is, and discuss common misconceptions that stop employers from claiming their refund. More importantly, we’ll explore whether your business stands to receive a substantial cash refund.
What is ERTC (Employee Retention Tax Credit)?
ERTC is a refundable tax credit giving businesses up to $26,000 per employee on their payroll.
When the Covid pandemic first impacted businesses in 2020, the CARES Act created a refundable payroll tax credit also called ERTC. The main goal was to keep companies afloat and encourage them to keep paying staff who couldn’t work due to government-issued social distancing rules.
The maximum tax credit was $5,000 per employee, and was available from March 13, 2020, through December 31 of the same year. New legislation extended the amount to a maximum of up to $7,000 per employee per quarter beginning January 1, 2021, ending on September 30, 2021.
The good news? The program expired on September 30, 2021, but business owners can still file for a refund from the relief period.
The CARES act was substantial, and Congress has already provided billions of dollars in tax relief for businesses to keep employees on their payroll. However, thousands of business owners haven’t claimed the credit yet.
Some didn’t know they were eligible. And others had taken out PPP (paycheck protection program) loans.
Initially, business owners couldn’t claim ERTC and take out a PPP loan. Most chose the latter and didn’t realize that the new rules allowed employers to retroactively apply for ERTC, even after drawing a PPP loan.
Although more than 30,000 small businesses have claimed over $1 billion in ERCs in 2021, many employers still haven’t checked if they qualify for the Employee Retention Tax Credit. These businesses are missing out on the biggest employer’s tax refund in US history.
Who Qualifies for ERTC?
To qualify for the ERTC, employers of businesses and nonprofits of any size must meet one of the criteria below:
The company was partially suspended or closed during the pandemic.
The employer lost a lot of money compared to before the pandemic.
If government orders prevented you from meeting with customers, or if curfews, shutdowns, supply chain disruptions, and social distancing hampered your business, you may qualify.
If your gross receipts saw a pandemic-related decline of at least 50% for 2020 (and 20% for 2021), you might also be eligible.
But here’s where it gets interesting. The CAA’s (Consolidated Appropriations Act) passing didn’t just increase the maximum tax credit per employee; the IRS also introduced these changes that could boost your ERTC eligibility.
The expansion of the category of employers – For 2021, tax-exempt public colleges, universities, and hospitals are also eligible.
Gross receipts test adjustments – The IRS reduced the gross receipts threshold from 50% in 2020 compared to the same quarter in 2019 to 20% for a quarter(s) in 2021 set against the same quarter in 2019. Were you not in business in 2019? Then you can use 2020 as your comparison year.
Revisions to the definition of qualified wages – In 2020, businesses with over 100 FTEs (full-time employees) could only claim for workers who weren’t working. Companies employing fewer than 100 FTEs could claim all their wages, whether or not they were working. For 2021 the IRS raised the threshold to 500 employees.
Definition expansion of operations suspended by government authority – For 2021, it includes orders limiting commerce, travel, or group meetings due to COVID-19.
Inclusion of employers who took out PPP loans – Employers who received a PPP loan can claim the enhanced ERTC. But don’t double dip. Employers cannot receive PPP forgiveness on payroll costs on which they have already claimed the ERTC.
After reading this, you may be confused. So, let’s look at three common misconceptions.
If you run an essential business like a pharmacy, you may think you don’t qualify. Fortunately, you may be eligible if you had to reduce your services or close at certain times during the day to allow for cleaning.
Your business might have grown during the pandemic, but if you experienced a full or partial suspension, you might have eligible expenses.
Charities, non-profit hospitals, museums
, and even churches are eligible.
The ERTC is a significant opportunity for business owners to get financial help from the government. While the IRS discontinued the credit at the end of 2021, employers can still file for the period of March 2020 to September 2021.
Let Asure help your business by calculating the credits and filing amended payroll tax returns to claim your ERTC credits.
If you’d like to speak to an HR representative about your business, contact us.
NOTHING IN THIS COMMUNICATION CONSTITUTES LEGAL OR TAX ADVICE OR A GUARANTY OF ELIGIBILITY OF AN EMPLOYEE RETENTION TAX CREDIT. ELIGIBILITY DETERMINATIONS RELATED TO THE EMPLOYEE TAX RETENTION CREDIT ARE THE RESPONSIBILITY OF THE EMPLOYER.