If they have yet to do so this year, qualifying employers can still take advantage of one of the CARES Act’s major benefits — the employee retention tax credit (ERTC).
Enacted with the 2020 coronavirus relief legislation and since extended through 2021, it is meant to help businesses that retained employees during the COVID-19 pandemic. The eligible refundable credit amounts differ significantly from 2020 to 2021, which can make determining eligibility and quantifying your benefit difficult.
For 2021, the ERTC allows eligible employers to claim a refundable tax credit against their share of an employee’s Social Security tax equal to 70% of the qualified wages paid. Wages are limited to $10,000 per employee per quarter, meaning the maximum is $7,000 per employee per quarter this year.
For 2020, the ERTC allows eligible employers to claim a refundable tax credit against their share of an employee’s Social Security tax equal to 50% of the qualified wages paid. Wages are limited to $10,000 per employee per year, meaning the maximum is $5,000 per employee per year.
Businesses typically qualified if they were fully or partially shut down because of a government order or experienced a 50% reduction in a 2020 quarter compared to the same quarter in 2019. In 2021, qualifying businesses must experience a 20% loss compared to a quarter in 2019.
IRS Notice 2021-49 provided updated guidance for the third and fourth quarters of 2021, including an expanded definition of eligible employers and modified definition of qualified wages. For more information on eligibility and other frequently asked questions, check here.
In the recently passed Infrastructure Investment and Jobs Act, which is awaiting the president’s signature, there is a provision terminating the ERTC program after the third quarter of 2021. Assuming that this provision remains, only the first three quarters of 2021 will be eligible for the ERTC.
We recommend all potentially eligible employers look into taking advantage of this credit and reach out to their payroll provider for guidance. Our staff is ready to assist and answer questions, as well. Schedule a chat today.