The Employee Retention Tax Credit is an incentive originally created within the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) intended to encourage employers to keep employees on the payroll as they navigate the unprecedented effects of COVID-19. Eligible employers can get a refundable payroll tax credit equal to a percentage of eligible wages.
An eligible employer is an employer that actively carries on a trade or business during calendar year 2020 or 2021, including tax-exempt organizations, and meets either of the Government Order Test or Reduced Gross Receipts Test.
The ERTC is a payroll tax credit (not an income tax credit) and is ultimately to be reported on Form 941. Eligible employers can claim the ERTC by computing the ERTC amount for a pay period and decreasing the required payroll deposit by that amount.
If your business had to suspend its operations at least partially (if not fully) because of a governmental order related to COVID. You are likely to qualify. Another piece of criteria is if you can prove a loss in revenue by 50% for a 2020 calendar quarter, as compared to 2019, or loss in revenue by 20% in a 2021 calendar quarter as compared to 2019.
Eligible wages under the ERTC for a small employer are all wages and health insurance benefits paid to an employee during the time period in which the employer is considered an eligible employer.
Eligible wages under the ERTC for an eligible employer that is not considered to be a small employer are wages and health insurance benefits paid to an employee who is not providing services due to the effects of the pandemic.
Every business is unique, and each has different needs. The best way to effectively position your business with the benefits of the Employee Retention Tax Credit is to partner with a tax advisor who understands your industry and tax law.