Did you keep your employees during the pandemic? You may qualify for up to $26,000 per employee by claiming the ERTC.
Our team specializes in the ERTC and how to utilize these benefits to keep your company thriving.
The Employee Retention Tax Credit (ERTC) was enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to support small business owners through the government-imposed shutdowns. The level of reimbursement was initially capped at $5,000 per employee in 2020.
Additional legislation, passed in 2021 under the Consolidated Appropriations Act (CAA) and the American Rescue Act (ARP), expanded ERTC eligibility and allowed eligible employers to claim up to $7,000 per employee. This legislation was amended by the Infrastructure Bill (H.R. 3684), passed in November 2021. Previously, companies could claim this tax credit for all of 2021, but now they are limited to Q1 - Q3 of 2021.
The IRS has not issued guidelines for companies who've already claimed advanced payments for Q4 2021, but Strike is prepared to support its clients no matter how the legislation is amended.
This tax credit supports small businesses that were affected by the COVID-19 pandemic. Government-imposed shutdowns, at all levels of government and across all industries, affected millions of small businesses. The IRS defines eligible employers as those whose “operations that have been partially or fully suspended due to governmental orders due to COVID-19, or businesses that have a significant decline in gross receipts compared to 2019.”
While many industries were impacted by the COVID-19 pandemic, some sectors were particularly affected. The following trades or businesses saw significant disruption:
The IRS changed the definition of a small business in relation this tax credit from 2020 (less than 100) to 2021 (less than 500), but both depend on the number of full-time employees (FTEs) in 2019. The IRS defines FTEs as employees who work 30 hrs/week (or 130 hrs/month). This definition is important as it opens the door for more businesses to claim the ERTC versus defining full-time as 40 hrs/week.
Eligibility is outlined in the CARES act, and is based solely on the quarterly comparison of gross receipts from 2020 to 2019.
For companies that meet this requirement, they are entitled to a refundable tax credit equal to 50% of qualified wages and health care costs paid, capped at $10,000 per employee per year. So the max per employee for the 2020 filing is $5,000 per employee.
Congress passed additional legislation in 2021 that provided another way a business could claim the credit: forced closure. A business must satisfy only one of the following two conditions to claim the credit in 2021:
For companies that meet just one of these conditions, they are entitled to 70% of wages and health care costs paid, capped at $10,000 per employee per quarter. This translates to a maximum refund per employee for 2021 of $7,000 per employee, for Q1 - Q3 (or $21,000 per employee per year).
Businesses that meet the requirements and are eligible for both 2020 and 2021 could be looking at up to $26,000 per employee ($5,000 for 2020 &
$21,000 for 2021).
Congress included a provision for Recovery Start Up Businesses (RSBs) as part of the American Rescue Act. RSBs are defined as businesses that i) were incorporated after 2/15/2020; ii) do not have annual gross receipts of over $1M; and iii) are not eligible for the ERTC under the partial or full suspension or 20% drop in gross receipts provision. RSBs can now claim wages capped at $10,000 per employee per quarter, for Q3 and Q4 of 2021. However, Congress implemented a cap of $50,000 in credits per quarter for RSBs.
Can you claim the ERTC if you received a Paycheck Protection Program (PPP) Loan?
If you received a PPP loan, you can still claim the ERTC, but only on qualified wages not counted as payroll costs covered by PPP loan forgiveness. Qualified wages can be applied to either the ERTC or PPP, but not both.
Rightly so. There are many other considerations and exemptions, including what constitutes qualified wages, how to calculate health expenses, and what documentation the IRS requires for this very beneficial and wide-ranging refund. Make sure you work closely with your tax advisor as there have been several iterations of this tax credit since its introduction.
To help businesses that have been impacted by the pandemic, Strike has added ERTC claims to its list of services. Contact one of our associates today.