The Employee Retention Tax Credit (ERTC) is a refundable tax credit that rewards businesses for keeping employees on payroll during the pandemic. It extended until the end of the third quarter of 2021, September 30, 2021. (You can only receive the ERTC in the fourth quarter of 2021 if you qualify as a “recovery startup business” under Section 3134(c)(5) of the IRS Code.)
Eligible employers can claim the credit against the employer share of Social Security tax equal to 70% of the qualified wages they paid to employees after December 31, 2020, through September 30, 2021. Because qualified wages are limited to $10,000 per employee per calendar quarter in 2021, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $21,000 in 2021.
Effective January 1, 2021, employers are eligible if they operated a trade or business during January 1, 2021, through September 30, 2021, and experienced either:
- A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter were less than 80% of the gross receipts in the same calendar quarter in 2019.
If your business didn’t exist in 2019, you can use the corresponding quarter in 2020 to measure the decline in your gross receipts. For the first three calendar quarters in 2021, you can measure the decline in your gross receipts using the immediately preceding calendar quarter (i.e., the fourth calendar quarter of 2020 and first calendar quarter of 2021, respectively) compared to the same calendar quarter in 2019.
In addition, effective January 1, 2021, the definition of qualified wages was changed to provide:
- For an employer that averaged more than 500 full-time employees in 2019, qualified wages are generally those wages paid to employees who are not providing services because operations were fully or partially suspended or due to the decline in gross receipts.
- For an employer that averaged 500 or fewer full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period when operations were fully or partially suspended, or during the quarter that the employer had a decline in gross receipts, regardless of whether the employees are providing services.
Retroactive to the March 27, 2020, enactment of the CARES Act, if you received Paycheck Protection Program (PPP) loans, you can claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.
For more information, see COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs.
It’s never too late to apply! As the nation’s leading specialty tax firm, Engineered Tax Services has had considerable experience both this year and last in helping clients claim the Employee Retention Credit. Let us guide you through the bureaucratic labyrinth of applying for the Credit, so you can enjoy the full economic benefits of this timely tax incentive!
