Learn How to Claim the Employee Retention Tax Credit
What are businesses eligible for the ERTC?
The ERTC was created to assist small businesses that lost revenue due to the epidemic, but only certain enterprises are qualified. Private organizations (including nonprofits) must meet one of the following criteria to allow:
• A local government has ordered your business to close entirely or substantially in 2020 or 2021.
• Your gross receipts for a single quarter in 2020 decreased by 50% compared to the same quarter in 2019. (for the 2020 tax credit).
• Your gross receipts for a single quarter in 2021 fell by 20% compared to the same quarter in 2019. (for the 2021 tax credit).
If your company did not operate in 2019, you may use a matching quarter in 2020 to demonstrate a revenue decrease between 2020 and 2021 and therefore qualify for the ERTC. Government entities and individual owners, for example, are not eligible for the ERTC. However, if a self-employed person has employees on the payroll, they may be suitable for the ERTC for salaries paid to the other employees.
Which employees are considered eligible?
For businesses with 100 or fewer full-time employees, all employees count toward qualifying, regardless of whether they provide service during the authorized period. Only full-time employees who are paid but not delivering service owing to shutdowns and a decrease in gross receipts count for organizations with more than 100 employees.
Employers may neither claim the ERTC credit and the Work Opportunity Tax Credit for the same employee during the same time nor may they claim both the ERTC credit and the employer credit under section 45S of the Family and Medical Leave Act during the same period (FMLA).
How to Determine the Size of Your ERTC
On up to 70% of “qualifying wages” given out to employees, eligible businesses can claim a refundable credit against what they ordinarily pay in Social Security tax. As of January 2021, qualified wages for enterprises with less than 500 employees are those paid to all full-time employees during a full or partial closure or a quarter with a fall in gross receipts.
Qualified wages are only those paid to employees who were not providing services within the same period for firms with more than 500 employees. In 2021, eligible wages were limited to $10,000 per employee per quarter. Therefore, the maximum ERTC allowed is 70% of $10,000, or $7,000 per employee per quarter.
For example, if your restaurant saw a 20% decrease in gross receipts in Q1 2021 compared to Q1 2019, you can apply for a tax credit of up to $7,000 per employee for the year’s first quarter. If that pattern continues throughout the year and you have decreased gross receipts, you may be able to claim the ERTC from Q1 through Q3 of 2021. In 2021, the credit could be worth up to $630,000 for a restaurant with 30 staff.
