Who qualifies for the Employee Retention Tax Credit, anyways? Knowing your eligibility goes a long way in acquiring this tax credit!
The Employee Retention Tax Credit (ERTC) was created to respond to the economic impact of the COVID-19 pandemic. It’s focused on granting financial relief to eligible employers.
The credit is designed to help offset the cost of maintaining employee payrolls during periods of economic hardship. To qualify for the ERC, an employer must meet certain eligibility requirements.
Keep reading to learn more about who qualifies for the Employee Retention Tax Credit. If you have any questions or would like some guidance, feel free to contact us at Northstar to speak wih one of our CPAs now.
What Constitutes a Partial Suspension of Business Operations
One of the key eligibility requirements for the ERC is that the employer must have experienced a partial suspension of business operations due to government orders related to the COVID-19 pandemic. A partial suspension of business operations is defined as a significant decline in gross receipts for a calendar quarter compared to the same quarter in the prior year.
The decline must be a result of the orders from an appropriate governmental authority that limit commerce, travel, or group meetings due to the COVID-19 pandemic. Thus, businesses that have not been impacted by closure orders may not be eligible for the ERC.
Loving this post? Make sure to check out our other article about Employee Retention Credit before you leave!
How Do I Calculate the Employee Retention Credit?
The calculation of the ERC is based on eligible wages and the number of employees. Eligible wages are defined as those paid to employees during the period of a partial suspension of business operations, or during a period of significant decline in gross receipts. The credit is equal to 50% of eligible wages, up to a maximum of $10,000 per employee.
Keep in mind, certain types of wages are not eligible for the ERC, such as qualified sick and family leave wages. Employers must also take into account the limitation on the credit based on the number of employees.
If you’re an employer with more than 100 full-time employees, the credit is only available for wages paid to employees who are not providing services due to the partial suspension of business operations or decline in gross receipts.
Ultimately, employers must evaluate their unique situation to determine if they meet the criteria for the ERC, calculate their eligible wages and number of employees, and then apply for the credit. But this evaluation becomes easier with expert financial guidance.
How Do You Claim the Employee Retention Credit?
Claiming the ERC is relatively straightforward and can be done by completing Form 941, Employer’s Quarterly Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. Eligible employers can claim the credit on their 2020 or 2021 quarterly employment tax returns, or on their annual employment tax returns.
The credit can be claimed as a refundable tax credit, which means that it can be claimed even if the employer has no tax liability. However, the credit is subject to certain limitations and must be claimed in the correct manner.
If you’re still unsure of your eligibility for the Employee Retention Tax Credit, feel free to contact us at Northstar. Our CPAs can help you evaluate your situation and determine if you qualify for this important tax credit.
Is the ERC going to expire?
The ERC is available through December 31, 2021. The amount of the credit available may be adjusted by future legislation, so it’s important to stay informed about any changes that may impact the availability of the credit.
While there will be a time that the ERC will be no longer available, the impact of this tax credit is far-reaching and it can provide a much-needed boost for eligible employers.
Can You Get the Employee Retention Credit and Paycheck Protection Program?
Yes, an eligible employer can receive both the ERC and the Paycheck Protection Program (PPP). However, it’s important to note that there are rules and restrictions around how the credits can be claimed and used.
For example, an employer cannot use the same wages for both the ERC and the PPP. In order to claim both credits, an employer must ensure that they are calculating the credits separately and that they are not double counting wages.
Northstar Can Help You Maximize the ERC
At Northstar, we have a team of experienced tax strategists who are knowledgeable about the ERC and other tax credits that may be available to your business. We’re ready to help you evaluate your eligibility for the credit and calculate how much you can receive. We’ll also ensure that you’re claiming the credit in the right way and that there are no errors that could lead to an audit or penalties.
Remember, the Employee Retention Tax Credit is a valuable program designed to help eligible employers maintain their payrolls during periods of economic hardship. To qualify for the credit, an employer must have experienced a partial suspension of business operations due to government orders related to the COVID-19 pandemic and meet other eligibility requirements.
The credit can be claimed by completing Form 941 or Form 943 and can be claimed as a refundable tax credit even if the employer has no tax liability. Employers can also receive both the ERC and the Paycheck Protection Program, but must ensure that they are calculating the credits separately and not double counting wages.
If you have any questions or would like to learn more about how the Employee Retention Credit can benefit your business, contact Northstar today! Our team of professional CPAs is eager to answer any questions you may have and help you maximize your ERC.