ERTC Funds Recovery
If you’re a business owner, you’ve probably heard of the Employee Retention Tax Credit (ERTC) – a valuable tax incentive that can help businesses save money during difficult times. The ERTC was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. It was designed to help businesses that were adversely affected by the COVID-19 pandemic to keep their employees on payroll and retain their workforce.
In this guide, we’ll provide an in-depth overview of the ERTC, including how it works, who is eligible, and how to claim it. We’ll also explain why the ERTC is important for businesses, and how you can take advantage of it to save money on your tax bill.
There is no cost or obligation to check eligibility.
What is the ERTC?
The Employee Retention Tax Credit (ERTC) is a refundable tax credit that can be claimed by eligible businesses to offset their federal payroll taxes. The credit was introduced as part of the CARES Act in 2020, and was later extended through the end of 2021 by the Consolidated Appropriations Act (CAA) of 2021.
The ERTC is designed to help businesses that were adversely affected by the COVID-19 pandemic to keep their employees on payroll and retain their workforce. By providing a tax credit for qualified wages, the ERTC helps businesses to reduce their payroll costs and stay afloat during difficult economic times.
How does the ERTC work?
The ERTC allows eligible businesses to claim a tax credit of up to $7,000 per employee per quarter for wages paid between March 13, 2020, and December 31, 2021. The credit is calculated as 70% of the first $10,000 in qualified wages paid to each employee during each quarter.
To be eligible for the ERTC, businesses must meet certain criteria, including:
- The ERTC is generally available to businesses with fewer than 500 employees. However, there are special rules for businesses with more than 100 employees. Specifically, if a business had an average of more than 100 full-time employees in 2019, it can only claim the ERTC for wages paid to employees who are not providing services due to the COVID-19 pandemic.
Decline in revenue
- Eligible businesses must have experienced a significant decline in revenue (50% or more) during a calendar quarter compared to the same quarter in 2019.
- Eligible businesses must have been fully or partially suspended due to a government order related to COVID-19, or have experienced a significant decline in gross receipts.
If a business meets these criteria, it can claim the ERTC for qualified wages paid to its employees during each quarter. The credit can be applied against the employer’s share of Social Security taxes, and any excess credit can be refunded to the business.
It’s important to note that businesses cannot claim the ERTC and the Paycheck Protection Program (PPP) for the same wages. However, businesses can claim the ERTC for wages that are not forgiven under the PPP.
What are the most common types of businesses that qualify?
There are many businesses that have had their operations fully or partially suspended due to government orders related to COVID-19. Some examples include:
Restaurants and bars
- In many states and countries, restaurants and bars have had to limit capacity or temporarily close their doors due to COVID-19 restrictions. This has had a significant impact on these businesses, as they rely on in-person dining and beverage sales to generate revenue.
Gyms and fitness studios
- Many gyms and fitness studios have been forced to close or limit capacity due to COVID-19 restrictions. This has made it difficult for these businesses to operate and generate revenue, as they rely on in-person classes and personal training sessions.
Theaters and entertainment venues
- Theaters and other entertainment venues, such as concert halls and stadiums, have also been impacted by COVID-19 restrictions. Many of these businesses have had to close or limit capacity, which has had a significant impact on their revenue streams.
- Some retail stores have had to limit capacity or temporarily close their doors due to COVID-19 restrictions. This has had a significant impact on these businesses, as they rely on in-person sales to generate revenue.
Travel and hospitality industry
- The travel and hospitality industry has been hit hard by COVID-19 restrictions, as many people have cancelled or postponed travel plans. Hotels, airlines, and other travel-related businesses have had to limit capacity and take other measures to comply with COVID-19 restrictions.
Overall, there are many real-world examples of businesses that have had their operations fully or partially suspended due to government orders related to COVID-19. These businesses have been impacted in a variety of ways, and many have struggled to stay afloat during the pandemic. The Employee Retention Tax Credit (ERTC) is one way that eligible businesses can receive financial assistance to help cover the cost of retaining employees during this challenging time.
Calculating the ERTC Tax Credit
The ERTC tax credit is calculated as a percentage of the qualified wages paid during the eligible period. The percentage of the credit has changed over time, but currently, it is equal to 70% of the qualified wages paid from July 1, 2021, through December 31, 2021. The maximum credit amount per employee for the eligible period is $7,000, which means that the maximum credit per employee is $4,900.
To claim the ERTC tax credit, you must report it on your employment tax return. If the amount of the credit exceeds the employer’s portion of Social Security taxes for the quarter, the excess is treated as an overpayment and is refunded to the employer. Alternatively, the employer can file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to request an advance payment of the credit.
Benefits of the ERTC Tax Credit
The ERTC tax credit offers several benefits to eligible employers, including:
- Help with employee retention: By providing a tax credit for retaining employees during the pandemic, the ERTC tax credit can help employers keep their staff on the payroll and avoid layoffs.
- Increased cash flow: The ERTC tax credit can provide a significant cash infusion for eligible employers, which can be used to cover expenses or invest in the business.
- Flexibility: The ERTC tax credit can be used in conjunction with other pandemic-related relief measures, such as the PPP loan program, to help cover a wider range of expenses.
- Reduced tax liability: The ERTC tax credit can significantly reduce the tax liability of eligible employers.
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