Maximize Your Savings: Employee Retention Tax Credit Updates

The Employee Retention Credit (ERC) has emerged as a crucial tax measure for small and medium-sized businesses navigating the economic impact of the pandemic. As the program undergoes several changes and updates, many businesses find themselves confused about their eligibility.

This article aims to provide a comprehensive guide on the latest updates to the ERC and how businesses can maximize their savings through this tax credit.

The ERC is a refundable tax credit that helps businesses retain employees during the pandemic. The credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was subsequently extended and expanded under the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act, 2021.

Despite its significance, many businesses remain unaware of their eligibility and how to claim the credit. This article aims to address these issues by providing a detailed overview of the ERC program, its eligibility requirements, recent updates, and how businesses can claim the credit.

What is ERC/ERTC?

The Employee Retention Credit (ERC/ERTC) is a valuable tax measure available to small and medium-sized companies and tax-exempt organizations to assist them in weathering the economic effects of the pandemic for distressed employers.

It allows businesses to claim a refundable credit of up to $26,000 per employee for wages retrospectively from March 13, 2020, until October 1, 2021. The ERC/ERTC is one of the most important tax incentives for businesses impacted by COVID-19, and it can be used to claim a refund per employee.

The benefits of the ERC/ERTC are significant. It is designed to help businesses retain employees, and it can be claimed by businesses that experienced a major drop in gross receipts. Government-mandated shutdowns also qualify businesses for the tax credit, making it a valuable resource for companies that have been impacted by the pandemic.

The tax credit can help businesses recover from the financial impact of COVID-19, and many businesses are not aware of their eligibility for the tax credit. Overall, the ERC/ERTC is a valuable tool for businesses looking to maximize their savings and recover from the economic effects of the pandemic.

Eligibility and Qualification

Eligibility for the employee retention tax credit (ERTC) can be compared to ticket to a popular concert, as businesses must meet certain requirements and qualifications to gain access to this valuable opportunity.

One of the key changes to the ERTC eligibility criteria is the revised gross receipts test. Under the Consolidated Appropriations Act of 2021, businesses are eligible for the ERTC if their gross receipts for a calendar quarter are less than 80% of the gross receipts for the same quarter in 2019. However, under the American Rescue Plan Act of 2021, businesses can now qualify for the ERTC if their gross receipts for a calendar quarter are less than 50% of the gross receipts for the same quarter in 2019. Additionally, severely financially distressed employers can qualify for a higher ERTC by demonstrating a 90% decline in gross receipts between the third and fourth quarters of 2021 and the corresponding quarter in 2019.

To qualify for the ERTC, businesses must also have experienced either a full or partial suspension of operations due to a government order related to COVID-19 or a significant decline in gross receipts.

Required documentation includes proof of government-mandated shutdowns and financial statements showing the decline in gross receipts.

Businesses with 500 or fewer employees are eligible for the ERTC, with some exceptions for larger employers.

It is important for businesses to carefully review the eligibility criteria and required documentation to maximize their savings through the ERTC.

Program Updates

Recent legislative changes have expanded the Employee Retention Credit (ERC) program, making it more accessible and valuable for businesses impacted by the COVID-19 pandemic. The Taxpayer Certainty and Disaster Tax Relief Act (TCDTR) of 2020 changed and expanded the ERC, allowing businesses to claim a refundable credit of up to $5,000 for each full-time equivalent worker maintained between March 13, 2020, and December 31, 2020, and up to $14,000 for each employee kept between January 1, 2021, and June 30, 2021. The American Rescue Plan (ARP) Act made the ERC accessible to eligible firms for salaries earned in the third and fourth quarters of 2021, and the ERC is still available for businesses, with a maximum claim of up to $26,000 refund per employee for the ERC. Additionally, the IRS Notice 2021-49 clarifies the ERC for businesses who pay qualifying salaries between June 30, 2021, and January 1, 2022.

Moreover, if your company recovered from a significant decline in gross receipts, you may still be eligible for a retroactive ERTC refund. The qualifying salaries for severely financially distressed employers have been changed. As of September 20, 2021, the ERTC could no longer be claimed for salaries paid due to a provision in the Infrastructure Investment and Jobs Act. However, eligible businesses can still claim the credit for salaries earned between March 12, 2020, and October 1, 2021, until the statute of limitations for Form 941 ends. Recovery-starting businesses are also eligible for the credit without having to shut down operations or cut gross receipts, but each company is only entitled to a total refund of $50,000 per quarter. With these updates, businesses can maximize their savings and take advantage of the ERC program.

ERC Expansion	Retroactive Refunds
The Taxpayer Certainty and Disaster Tax Relief Act (TCDTR) of 2020 changed and expanded the ERC	Eligible businesses can still claim the credit for salaries earned between March 12, 2020, and October 1, 2021, until the statute of limitations for Form 941 ends. Recovery-starting businesses are also eligible for the credit without having to shut down operations or cut gross receipts, but each company is only entitled to a total refund of $50,000 per quarter.
The American Rescue Plan (ARP) Act made the ERC accessible to eligible firms for salaries earned in the third and fourth quarters of 2021	If your company recovered from a significant decline in gross receipts, you may still be eligible for a retroactive ERTC refund. The qualifying salaries for severely financially distressed employers have been changed.
The IRS Notice 2021-49 clarifies the ERC for businesses who pay qualifying salaries between June 30, 2021, and January 1, 2022	As of September 20, 2021, the ERTC could no longer be claimed for salaries paid due to a provision in the Infrastructure Investment and Jobs Act
The maximum claim of up to $26,000 refund per employee for the ERC is still available for businesses	Recovery-starting businesses are eligible for the credit without having to shut down operations or cut gross receipts, but each company is only entitled to a total refund of $50,000 per quarter

How to Claim

To claim the Employee Retention Credit, businesses must file Form 941 for the applicable quarter and include the credit on their tax return. The credit is claimed on the employer's federal employment tax return, Form 941, for the applicable quarter. Employers may also need to file an amended Form 941-X for prior quarters to claim the credit retroactively.

In addition to the form, businesses must also maintain documentation to support their eligibility for the credit, including records of qualified wages paid to employees, the number of full-time equivalent employees, gross receipts, and other relevant information. Documentation requirements may vary depending on the size of the business and the amount of the credit being claimed.

For businesses with less than $5 million in gross receipts, they only need to retain records relevant to eligibility for the credit for four years from the due date of the tax return or the date the tax return is filed, whichever is later. Businesses with more than $5 million in gross receipts must retain records for six years.

It is essential to keep accurate and complete documentation to support the credit claimed, as the IRS may request further information or conduct an audit to verify eligibility.

Importance for Businesses

The Employee Retention Credit can significantly aid businesses that have been adversely impacted by the pandemic in retaining their workforce and recovering from the financial losses they have suffered. This tax credit provides eligible businesses with a refundable credit of up to $5,000 per employee for wages paid between March 13, 2020, and December 31, 2020.

For wages paid between January 1, 2021, and June 30, 2021, the credit can be up to $14,000 per employee. The credit can be a valuable tool for businesses to maximize their savings and enhance their financial position during these challenging times.

The Employee Retention Credit benefits businesses by providing them with a cash infusion to help them retain their employees and mitigate the financial impact of the pandemic. The credit can be used to offset payroll taxes, and any unused credit can be refunded to the business.

By retaining their employees, businesses can maintain their operations and prepare for future growth opportunities. The Employee Retention Credit is an essential program to help businesses recover from the financial impact of COVID-19 and maximize their savings.

Frequently Asked Questions

Are there any limitations on the types of businesses that can claim the Employee Retention Tax Credit?

Limitations on eligibility for the Employee Retention Tax Credit include meeting qualifying business criteria such as experiencing a significant decline in gross receipts or being subject to a government-mandated shutdown. Other criteria apply, and businesses should consult with a tax professional to determine eligibility.

Can businesses claim the tax credit for employees who were furloughed or laid off during the covered period?

The eligibility criteria for the Employee Retention Tax Credit (ERTC) requires that businesses maintain employment levels during the covered period. Furloughed employees who continue to receive wages are eligible for the credit, but those who have been laid off are not.

Is there a limit to the amount of the tax credit that a business can claim?

The maximum tax credit a business can claim for each employee is $5,000 for the period between March 13, 2020, and December 31, 2020, and $14,000 for the period between January 1, 2021, and June 30, 2021, subject to eligibility criteria.

How long does a business have to file for the tax credit?

The filing deadline for the Employee Retention Tax Credit (ERTC) depends on the period in which the eligible wages were paid. Eligible businesses can claim the ERTC for wages paid between March 12, 2020, and October 1, 2021, until the statute of limitations for Form 941 ends. Eligibility criteria include demonstrating a decline in gross receipts and meeting other requirements outlined by the IRS.

Are there any penalties for businesses that claim the tax credit incorrectly?

Penalties for incorrect claims of the Employee Retention Tax Credit (ERTC) can include fines and potential criminal charges. Eligibility requirements must be met, and businesses should maintain proper documentation to avoid errors in claiming the credit.