What Is the Federal-Level Employee Retention Tax Credit Program (“ERTCP”)?
A business with employees that was subject to government regulations brought about by the COVID-19 pandemic or that suffered economic losses in 2020 or 2021 as a result of COVID-19 closures is eligible to receive the Federal-Level Employee Retention Tax Credit Program (“ERTCP”).
As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), ERTCP was created to provide businesses with a refundable credit that can be claimed on wages paid to employees. ERTCP was devised as an incentive for employers to retain employees on their payrolls when the pandemic began.
Employers should know that ERTCP is a refundable payroll tax CREDIT, not a loan. It entitles employers to reductions to payroll taxes or cash refunds. Notably, the ERTCP can be applied retroactively to March 12, 2020. This means that you still have the opportunity to claim funds through the federal government to help your business as it continues to navigate this unprecedented and continued pandemic.
How much can I receive under the ERTCP?
The ERTCP is a fully refundable tax credit. For qualified wages paid from March 12, 2020 through December 31, 2020, the ERTCP can be applied to 50% of qualifying wages (e.g., which includes qualified health expenses) for eligible employees. Employers can claim 50% of up to $ 10,000 qualifying wages and health benefits per employee, with a maximum credit of $ 5,000 per employee in 2020.
For example, you pay Mary $ 8,000 wages and healthcare in Q2, $ 6,000 in Q3, and $ 6,000 in Q4 of 2020. Your credit amount for Mary is $ 4,000 in Q2, $ 1,000 in Q3, and $ 0 in Q4. Once you hit the $5,000 limit, any additional wages you pay Mary in 2020 will not increase your credit amount.
The ERTCP is also available for wages paid from January 1, 2021 through September 30, 2021. For periods beginning January 1, 2021, the ERTCP can be applied to 70% of qualifying wages up to $ 10,000 per eligible employee, with a maximum credit of $ 7,000 per employee for each quarter of 2021.
This equates to a maximum credit of $21,000 per employee in 2021, and a total of up to $26,000 per full-time W-2 employee for both 2020 and 2021.
We can assist you in providing the following ERTCP services:
- Determine if the employer qualifies, and if so, for which quarters
- Determine which employee wages qualify
- Calculate credits, including analysis of PPP interplay
- Reconcile actual credits with advance credits requested
- Prepare reconciled data for Form 941-X
- Prepare documentation supporting eligibility