Learn How to Claim the Employee Retention Tax Credit
In March 2020, Congress established the Employee Retention Tax Credit (ERTC) to provide financial assistance to small businesses during the epidemic. Since then, the ERTC has been enlarged twice, allowing more struggling businesses to use it to reduce their federal tax payment.
The ERTC was set to expire on January 1, 2022, but the 2021 Infrastructure Bill retroactively pushed the credit’s expiration date to October 1, 2021.
Even though the ERTC has ended, qualifying employers can still claim it for their 2020 or 2021 taxes by updating their returns. Here’s all you need to know about the ERTC and how it works.
What exactly is an Employee Retention Tax Credit?
The Employee Retention Tax Credit (ERTC) is a tax credit that assists businesses that lost revenue owing to COVID-19 in 2020 and 2021. The ERTC was created to encourage businesses of all kinds to keep people on their payroll during this challenging economic period.
Eligible businesses can receive up to $7,000 per employee per quarter for the first three quarters of 2021, for a total of $21,000 per employee potentially returning to your organization. They may also be eligible for a $5,000 tax cut per employee for 2020.
The ERTC has evolved, making it difficult to determine where things stand today. The ERTC was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, as a financial relief option for businesses. On the other hand, companies could only use a forgiving Paycheck Protection Program (PPP) loan or the ERTC in the original measure. So only a few were allowed to use the credit.
Congress amended the ERTC in the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) in December 2020 and again in the American Rescue Plan Act (ARPA) in March 2021, allowing new firms to use the credit.
After the Infrastructure Bill was enacted on November 15, 2021, the ERTC’s initial expiration date was shifted by a quarter, thus removing the credit on October 1, 2021.
