The Employee Retention Tax Credit (ERTC) is still available to eligible employers. However, the IRS has issued guidance on the use of the credit and the amount of credit an employer is able to claim. If your business has been experiencing financial difficulties and has been losing revenue, you may be eligible for a higher ERTC.
Employers can claim their lost revenue from 2020
If you are an employer, chances are you have been reading about the CARES Act of 2020 and you have heard of the ERC or its predecessor, the Employee Retention Tax Credit, but you may not have been aware of all of its perks. The ACT allowed for dollar-for-dollar tax credits to be claimed against payroll taxes on a quarterly basis, which in theory should help to entice companies to stay in business.
While the ACT did indeed provide some incentives for businesses to keep their employees, it also came with its own set of downsides says erctaxcreditgov.com. Aside from losing a lot of money in the process, the ACT has left companies with more to do than they can handle, especially if they were counting on the ACT as a source of revenue. This has led to a glut of unscrupulous scam artists looking to cash in on these businesses. Fortunately, there are some legal ways to go about snagging the ACT without risking a rap from the feds.
Employers may only use the credit for employees who aren’t working
Aside from the usual tax returns and payroll checks, an employer can make some serious tax savings by claiming the Employee Retention Credit (ERC). For an employer, the reward is a refundable tax credit equal to 50% of the qualified wages of eligible employees. In addition, the IRS will make an advance payment to employers who are short on employment tax deposits. This can be done by filing Form 941-X, a short form for an employer’s employment tax returns.
The ERC has been around since the days of the Obama administration, but it was only officially approved by Congress in 2020. Although it has been rolled out across the country, the rules still haven’t been completely clarified. You’ll need the help of your tax specialist or accountant, but don’t be shy if you’re stuck on a particular.
First and foremost, you’ll need to determine your company’s full time workforce. This is the only way to be sure you’re taking advantage of the ERC and other perks of the federal government.
Employers with severe financial difficulties may be eligible for higher ERTC
If you’re a small business owner, you might have heard of the Employee Retention Tax Credit (ERTC). It’s a refundable tax credit that can be applied to your employer’s liability for payroll taxes. This credit is available to businesses that have experienced a financial loss due to a significant decrease in revenue or operations.
ERTC is an incentive that was passed by Congress to help employers keep employees on the payroll. To qualify for ERTC, you must meet certain eligibility requirements. The maximum amount of the credit is $7,000 per employee.
There are two tests for qualifying for ERTC. One test requires a business to have lost more than half of its gross receipts. The other requires a company to have experienced a partial or full shutdown. A partial shutdown is a situation in which the business has suspended its operation or its suppliers have not been able to supply critical goods.
Businesses must also demonstrate that their business was affected by the COVID-19 pandemic. In other words, the business must have been unable to obtain critical supplies or operate under government orders.
IRS provides guidance for employers claiming the credit
The Internal Revenue Service has issued guidance for employers claiming the Employee Retention Credit for the 2020 tax year. In addition, the IRS has provided FAQs on the credit and the deferral of payroll taxes.
Generally, the credit is available to eligible businesses. It applies to the 6.2% employer portion of Social Security payroll tax.
The IRS provides a variety of ways to calculate the credit. For example, an eligible business may claim a credit on a Form 941 or an adjusted employment tax return. An Eligible Employer can also request an advance of the credit.
To be eligible, an Eligible Employer must meet the criteria for the credit. The credit is refundable. During the 2020 tax year, the credit applies to qualified wages paid between March 12, 2020 and September 30, 2021.
Eligible employers must file quarterly employment tax returns. If the amount of the credit exceeds the amount of federal employment taxes withheld, the employer can reduce the deposit on the Form 941.