The Employee Retention Tax Credit (ERTC) is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This legislation was created to offer emergency assistance and healthcare for individuals, families, and businesses impacted by the 2020 COVID-19 pandemic.
What Is the CARES Act?
Introduced in March 2020, the CARES Act was a $2.2 trillion stimulus bill passed by the US Congress to alleviate the devastating impact of nationwide lockdowns in response to COVID-19. As part of the CARES Act, the Employee Retention Credit, or ERTC, is a tax credit for companies that paid employees during the COVID-19 pandemic shutdowns or experienced major declines in gross receipts between March 13, 2020 to Dec. 31, 2021.
A survey of nearly 6,000 organizations conducted between March and April of 2020 found that 43 percent of businesses were forced to temporarily close due to the pandemic, mounting health concerns, and a dramatic reduction in demand. In the Mid-Atlantic region, 54 percent of firms were shut down and employment declined by 47 percent. Retail, arts and entertainment, personal services, food services, and hospitality businesses all experienced employment declines of more than 50 percent.
The uncertainty of the pandemic also highlighted the fragility of small businesses. Around 48 percent of American employees work for small businesses, and the average small enterprise with monthly expenses exceeding $10,000 only had enough reserve cash to last 14 days.
Now that you understand how the Employee Retention Tax Credit works, here are four important facts you need to know:
1. Businesses can still claim the ERTC.
For-profit companies can still retroactively claim the ERTC by filing an amended tax return. Businesses can identify eligible wages paid after March 12, 2020, through the cutoff date of Oct. 21, 2021. According to the IRS, employers are eligible to claim the ERTC if they meet the following requirements:
- Their business experienced a full or partial suspension of operations that limited or halted commerce, travel, or group meetings due to the COVID-19 pandemic or orders from a governmental authority.
- Their business sustained a major decline in gross receipts during 2020 the first three quarters of 2021.
- Their business qualified as a recovery startup business during the third or fourth quarters of 2021.
2. The ERTC can’t be claimed indefinitely.
For-profit companies have up to three years from their tax return’s due date of April 15 to file for the Employee Retention Tax Credit. This means that employers can claim the 2020 ERTC until April 15, 2024, and the 2021 ERTC until April 15, 2025. To do so, they must file form 941-X.
3. It’s important to protect your business from ERTC scams.
In 2022, the IRS warned employers to avoid ERTC mills and similar tax scams. Business owners and financial advisors should remain on the lookout for scams that promise unrealistic tax savings. If a business claims the ERTC without eligibility, it will likely have to pay the funds back, along with fees and interest.
4. Business owners may be eligible to claim up to 50 percent of wages paid per employee.
According to the IRS, the ERTC is “50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.”
Per quarter, employers can potentially qualify for up to $5,000 in tax credits per paid employee during 2020 and up to $7,000 in 2021. However, wages reported as payroll costs for PPP loan forgiveness or certain other tax credits can’t be claimed for the ERTC.
Cunningham & Associates: ERTC Experts
Cunningham & Associates offersIRS-compliant retention credit services and transparent fixed-fee pricing. That means business owners know how much their ERTC services will cost.
We have more than 30 years of tax and financial experience and a hard-earned reputation of trust and integrity. Our team ensures that everything we do complies with IRS standards. We’ll even file for you!
Are you interested in learning more? Click here to learn more about how to qualify for the ERTC.
