The Employee Retention Tax Credit has seen some recent amendments that have made it so that many more businesses, initially either excluded or those who chose PPP loans instead, are now eligible for several thousand dollars per each retained employee during 2020 and 2021. Read on to find out if your business qualifies.
Employee Retention Tax Credit: Recent Changes That Could Help Your Business
During the pandemic, there were several tax relief programs and items that made their way into the tax code. Some were near-permanent, and others were only for a short time during the worst of the lockdowns and layoffs.
The Employee Retention Tax Credit was one of those programs, but it has seen big changes that may mean larger tax credits are available for your business even if you’ve already filed your business taxes for 2020 and 2021.
The Employee Retention Tax Credit is one that has recently been expanded. In the early days of the program, businesses were told they could choose either PPP loans or the Employee Retention Tax Credit (ERTC). Because the PPP loans were more of a focus point for financial institutions like banks and other financial services providers, many businesses chose to take PPPs.
But now, that stipulation is gone. So. Even if your business took a PPP loan to be able to continue paying your employees, you may also still be eligible for the ERTC.
There are a few main ways to qualify for the Employee Retention Tax Credit if you paid employees during most or even just some of the pandemic:
- Full or Partial Shutdown: Your business is eligible if it was fully or partially shut down by any federal, state, or local shutdowns – these include travel restrictions, capacity restrictions or maximum occupancy gatherings, and more.
- Gross Receipts (Revenue) Lost: Your business is eligible if you experienced revenue loss in certain quarters of 2020 and 2021 as compared to those same quarters in 2019.
How Much Tax Credit Does Your Business Qualify For?
According to the most recent changes (listed here in the addendum section at the top of this IRS FAQ page), your eligibility is all but guaranteed if you experienced either or both of the items above, and you didn’t claim that payroll for your PPP.
The only caveat is related to the PPP loans – if you took a PPP loan for 2020 wages, for example, any of those claimed under that program will not be eligible for the ERTC program. Essentially, you can have both, but they can’t both be applied to the same paychecks from 2020 and 2021.
Calculating the ERTC for Your Business
If your business has 100 or fewer employees, they all qualify you for eligibility under the Employee Retention Tax Credit. For businesses with more than 100 employees, only those full-time employees who were paid but didn’t provide work due to shutdowns (and/or a gross receipt reduction) will count towards that eligibility. This eligibility also doesn’t count towards any wages that were covered under the Work Opportunity Tax Credit for the same period or any wages that were used towards an FMLA (Family and Medical Leave Act) claim.
Eligible businesses can claim a credit (paid by refund check) if they resubmit their 2020 and 2021 tax returns. The credit will be claimed against the typical payment amount on up to 70% of the qualified wages paid to retained employees in 2021, and 50% of qualified wages in 2020. This qualified amount is capped at $10,000 per employee per quarter – which means you can get up to $7,000 per employee per quarter in 2021.
Businesses are eligible under the gross receipt reduction as well. If your 2020 gross receipts (revenue) for any quarter fell by 50% compared to the same quarter in 2019, or if your gross receipts fell by 20% in the first three financial quarters of 20021 as compared to 2019, that amount qualifies for the Employee Retention Tax credit if you were paying your employees during that time.
2020 and 2021 Can Still Be Good to You – And eFile360 Can Start Your 2023 Tax Season Off Right, Too!
While you work with your CPAs or financial and tax advisors to make the most of your losses and employee retention in 2020 and 2021, eFile360 can help set you on the right track for tax season 2023 and beyond.
Your information returns can be safely stored, amended, printed, mailed, and e-filed through our services, saving you time and money. We also offer TIN checking so you don’t have to worry about incurring any penalties or using the money received from your Employee Retention Tax Credit to cover errors made based on your incorrect information returns.
Make the most of your ERTC by putting it back into your business, and let eFile360 guarantee your tax accuracy for the future. We offer filing and storage services for all 1099s and 1098s, as well as ACA and W-2 forms.
To keep your information returns organized and readily available whenever you need them, sign up for a free eFile360 account today.