The Employee Retention Tax Credit (ERTC) is a tax credit available to eligible employers to help them retain their employees and cover certain expenses during the COVID-19 pandemic. The credit is designed to encourage businesses to keep their employees on their payroll and provide them with financial support during this difficult time.
To be eligible for the ERTC, a business must have experienced a significant decline in gross receipts or be required to fully or partially suspend operations due to government orders related to COVID-19. Businesses that were in operation on February 15, 2020 and have 100 or fewer full-time employees may be eligible for the credit.
Eligible employers can claim the ERTC by filing Form 941, Employer’s Quarterly Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. The credit is applied against the employer’s share of Social Security tax and is refundable, meaning that eligible employers can receive the credit even if they have no tax liability.
The amount of the credit is based on the number of employees the business has and the amount of wages it pays. For businesses with more than 100 employees, the credit is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 per employee. For businesses with 100 or fewer employees, the credit is equal to 80% of qualified wages paid to employees, up to a maximum of $7,000 per employee.
In addition to the ERTC, there are other tax credits and relief measures available to businesses affected by COVID-19. These include the Paycheck Protection Program (PPP), which provides forgivable loans to eligible businesses to help cover their payroll and certain other expenses, and the Employee Retention Credit (ERC), which is similar to the ERTC but applies to a different time period and has different eligibility requirements.
It is important for businesses to carefully review the eligibility requirements and calculate the amount of the credit they are entitled to in order to claim the ERTC accurately and maximize their benefits. Business owners should consult with their tax professional or the IRS for more information on the ERTC and other tax credits and relief measures available during the COVID-19 pandemic.