As an employer, you may be eligible for the Employee Retention Tax Credit (ERTC) if you experienced a significant decline in gross receipts or were fully or partially shut down due to COVID-19. The ERTC is a refundable tax credit that can help you retain your employees and keep your business running. In this article, we will discuss the eligibility criteria and how to claim the credit.
Eligibility Criteria
To be eligible for the ERTC, you must meet one of two requirements:
- Experience a significant decline in gross receipts: You must show that your gross receipts for a quarter in 2021 are less than 80% of the same quarter in 2019. Alternatively, you can compare the annual gross receipts of 2020 to that of 2019.
- Partial or full shutdown due to COVID-19: You must have been fully or partially shut down by a government order or have experienced a significant decline in revenue due to COVID-19.
How to Claim the Credit
To claim the ERTC, you need to file Form 941, Employer’s Quarterly Federal Tax Return. You can claim the credit against the employer’s portion of Social Security tax on wages paid to your employees. If the amount of the credit is more than the Social Security tax, you can file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to get an advance payment.
You can claim the credit for wages paid between March 13, 2020, and December 31, 2021. The amount of the credit is 70% of up to $10,000 of qualified wages per employee per quarter. Qualified wages include wages, tips, and health benefits paid to employees.
If you have more than 500 employees, you can only claim the credit for wages paid to employees who were not providing services due to a government order or a significant decline in revenue. If you have 500 or fewer employees, you can claim the credit for all wages paid to your employees during the eligible period.
Conclusion
The Employee Retention Tax Credit can be a lifeline for businesses struggling to keep their doors open during the pandemic. If you meet the eligibility criteria, you should consider claiming the credit to help retain your employees and keep your business afloat. Remember to consult with a tax professional or use tax preparation software to ensure that you claim the credit correctly.
