How to Claim the Employee Retention Credit

When the COVID-19 pandemic hit the world in 2020, many businesses had to stop operating in the same way they had before. The United States government responded to this by introducing the Employee Retention Tax Credit (ERTC) or Employee Retention Credit (ERC) to help small eligible employers around the United States with the cost of keeping staff employed.

The Employee Retention Credit is very valuable as it allows employers to receive up to $26,000 per employee. It was written by the United States Congress in March of 2020 and it has actually been extended twice since that time, and thankfully, businesses still have time to file.

What Is The Employee Retention Tax Credit?

The Employee Retention Credit is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act which is a $2.2 trillion economic stimulus bill. The CARES Act intended to help American workers and business owners financially.

In 2021, the Employee Retention Tax Credit was extended as part of the Consolidated Appropriations Act of 2021 for the first two calendar quarters of that year. Even though the tax credit expired in October 2021, qualified businesses, companies, and employers can still file paperwork and receive claims up to three years after they originally filed their payroll tax returns for eligible quarters.

The Employee Retention Credit is a refundable payroll tax credit; it is not a loan that needs to be paid back. It is aimed to help employers whose businesses were impacted by the COVID-19 pandemic. Mainly, it was created to help small eligible employers with the cost of keeping staff employed.

Which Employee Wages Are Qualified for The Employee Retention Tax Credit?

The definition of qualified wages for 2020 changes slightly depending on how many employees depend on how many employees a business employed in 2019. For an eligible employer that averaged more than 100 full-time employees in 2019, qualified wages are the wages paid to an employee for time that the employee is not providing services due to either a significant decline in gross receipts or a full or partial shutdown because of a government-mandated shutdown. For eligible employers with less than 100 full-time employees, qualified wages are the wages paid to any employee under the same circumstances. However, it is imperative that these expenses were paid after March 12, 2020, and before January 1, 2022, as this is the period covered by the laws related to the Employee Retention Tax Credit.

It is also important to note that wages used to obtain Paycheck Protection Program (PPP) loan forgiveness can not also be used as qualified wages for the Employee Retention Credit.

Which Businesses Can Qualify for The Retention Tax Credit?

If you are an employer or business owner, you may be wondering if you qualify for the employee retention credit. There are some pre-requisites that must be met, such as:

  • Fully or partially suspended operations during any of the eligible calendar quarters in 2020 or 2021 due to government order limiting commerce, ability to travel, or hold meetings and events with staff due to COVID-19 lockdowns, quarantines, and government orders
  • Experienced a significant decline in gross receipts

Businesses that qualify for the employee retention credit under full or partial shutdown could earn a tax credit only for the shutdown period if the shutdown order had more than a nominal effect on your business operations.

You may also be eligible by calculating your business’s decline in gross receipts in during eligible calendar quarters compared to the same quarter in 2019. For quarters in 2020, an employer must have at least suffered a 50% decline in gross receipts when compared to the same quarter in 2019 to be eligible for the Employee Retention Credit. For quarters in 2021, an employer must have at least suffered a 20% decline in gross receipts when compared to the same quarter in 2019.

It is important to note that recovery startup businesses that opened after February 2020 do not have gross receipts from 2019 which they can use as a comparison. Therefore, they can use the gross receipts from the year 2020.

How Can A Business Owner File For the Tax Credit?

Eligible employers must first determine their eligibility, making sure they meet the IRS’s qualifications. Otherwise, their paperwork will not be accepted. Once you are certain that you are eligible for the employee retention credit, then you can move forward and actually file for the credit.

Originally, employers were able to claim the employee retention credit whenever they file quarterly taxes to the government through Form 941. However, the deadline for the Employee Retention Credit ended on September 30, 2021. Thankfully, it’s not too late for businesses to take advantage of this credit!

Employers can amend previously submitted forms by filing and submitting Form 941-x so they can retroactively claim the Employee Retention Credit. They can do so for up to three years after the original taxes were submitted.

There are countless benefits from claiming the Employee Retention Tax Credit. Business owners badly need financial assistance after the blow of the pandemic and as they face increasing costs. Reach out to one of our tax specialists today to see how your business could benefit from the credit.