If you are an eligible employer who has retained employees during the COVID-19 pandemic, you may be able to claim the Employee Retention Credit (ERTC) on your federal employment tax returns. Here are some of the steps you need to take to apply for the ERTC
Determine Your Eligibility
Before starting your Employee Retention Credit application, you need to decide if you are eligible for the ERTC. To qualify you must have experienced a significant decline in gross receipts in a calendar quarter in 2020 or 2021 compared to the same quarter in 2019. Alternatively, you must have had your business operations suspended due to a government order related to COVID-19.
You must also have had an average of 500 or fewer full-time employees during 2019. Beginning in 2022, employers with up to 1,500 full-time employees are eligible for the credit. Additionally, qualified wages must have gotten paid to employees during the period of eligibility.
Calculate Your Credit Amount
The ERTC is equal to 70% of qualified wages paid to employees. The maximum amount of wages you can claim is up to $10,000 per employee per quarter. This limit means that the maximum credit per employee per quarter is $7,000.
Qualified wages include all wages paid to employees during the period of eligibility. These qualified wages can consist of health benefits and certain other expenses.
For employers with up to 500 employees, qualified wages include wages paid to all of your employees, regardless of whether they worked during the period of eligibility. For larger employers, qualified wages only include wages paid to those employees who did not work during the period of eligibility.
Report the Credit on Your Employment Tax Return
To claim the ERTC, you must report it on your employment tax return. If the credit amount your business will receive is more than the business’s federal employment taxes owed, the excess can get refunded to the company.
Businesses can claim the credit on Form 941, Employer’s Quarterly Federal Tax Return, for the applicable calendar quarter. Employers can also request a payment in advance of the credit amount by filing IRS form 7200, Advance Payment of Employer Credits Due to COVID-19.
It is crucial to keep accurate records of the ERTC. These records should include the amount of the credit claimed, the number of employees for whom the credit got claimed, and the period of eligibility.
Employers should also keep documentation that supports their eligibility for the credit. This documentation should include things like financial statements, government orders, and other relevant documents.
If you feel that your business qualifies for this credit, you are now ready to apply for the credit. Here are some helpful tips for applying for the Employee Retention Credit.
Consult With a Tax Professional
The rules and regulations surrounding the ERTC can be complex. It may be beneficial to consult with a tax professional to ensure that you are eligible for the credit and that you are claiming it correctly.
Keep Accurate Records
As mentioned, it is vital to keep accurate records of the ERTC. There will most likely be no question about the amount you claim or the credit you receive. That said, if there is an issue with your claim, you will want to meticulously document the rationale behind your claim to present to any government agency in case of a dispute.
Stay Up-to-Date on Changes
The rules and regulations surrounding the ERTC have changed several times since it got introduced. It is important to stay up-to-date on any changes to the program and how they may affect your eligibility or credit amount.
The Employee Retention Credit is a federal tax credit that is available to eligible employers who retained employees during the COVID-19 pandemic. The primary purpose of the credit was to help businesses that suffered hardships as a result of covid, so if that applies to your business, you owe it to your business to take the steps to apply. Business owners would serve themselves well to consult tax professionals when applying if they have any questions about the process.