Employee Retention Tax Credits – does your business qualify for this substantial tax credit?

by Lynn Spencer

Business owners may be eligible for a very significant tax break, the Employee Retention Tax Credit (ERTC).  It was first introduced in March 2020, under the CARES Act, but has since expanded twice in eligibility and tax credit and extended through December 31, 2021.

Eligible businesses can deduct up to 70% of up to $10,000 in qualified wages paid, per employee, per qualifying quarter, which is a potential credit of $28,000 per employee in 2021, up from $5,000 per employee in 2020 (most businesses did not qualify last year).

To qualify in 2021, businesses must have experienced a government ordered shutdown or seen a 20% or more quarterly decline in gross receipts.  Credits must be reduced by any credits claimed under Families First Coronavirus Response Act.  PPP loans used toward specific wages excludes these same wages from eligibility for ERTC.  Business owners can maximize both PPP & ERTC by applying 40% of forgiven PPP funds to non-payroll costs and cherry-picking wages for forgiveness.

To claim the ERTC, use Form 941, Employer’s Quarterly Federal Tax Return.  To reduce payroll deposits in anticipation of receiving the credit, submit Form 7200.  To amend a previous quarter to claim the credit, file Form 941-X.

In summary, the ERTC is an opportunity for business owners with W-2 wages to obtain significant help from the government to pay employees.  The above is a brief simplified version of the ERTC under the American Rescue Plan Act of 2021 (ARPA).  Professional guidance is recommended to determine eligibility and to file for the credit.