Are you a business looking for ways to save on taxes?
The Employee Retention Tax Credit (ERTC) could be just the solution you need. This refundable business tax credit from the IRS rewards businesses that kept employees during the COVID-19 pandemic, up to $26,000 per employee.
In this article, we’ll explore the eligibility requirements, amount of the credit, and other important considerations for businesses interested in taking advantage of ERTC.
So let’s take a look at how you can benefit from this great opportunity!
Overview of the ERTC Tax Credit
You can get rewarded for keeping your employees during the pandemic with the Employee Retention Tax Credit (ERTC), which could give you up to $26,000 per employee. The ERTC is a refundable business tax credit from the IRS that is available to businesses and non-profits of any size that closed or limited operations due to COVID-19.
If your business lost money compared to before the pandemic, you may still be eligible. Private businesses or tax-exempt organizations that conduct a trade or business also qualify for this tax credit. Eligible businesses must meet certain criteria in order to receive the ERTC.
For 2020, businesses with 100 or fewer full-time employees can include all their qualified wages when calculating the credit. In 2021, this threshold is raised to 500 or more full-time employees. Qualified wages are considered any form of wage subject to FICA taxes and tips may be considered if they are Medicare wages too.
Businesses should note that they cannot double benefit by utilizing their wages for both ERTC and other credits/reliefs like PPP loans – it’s either one or the other! Businesses will need to apply different caps depending on what year they are claiming for.
In 2020 it’s an annual cap of $10,000 per employee multiplied by 50%, with a maximum being $5,000 per employee; and in 2021 there’s a quarterly cap of $10,000 multiplied by 70%, with a maximum of $7,000 per employee each quarter. It’s important to consult IRS Notice N2021-20 as well as FAQs #17 & #18 regarding eligibility requirements for further details around these thresholds and caps!
It’s best practice to consult with a certified public accountant (CPA) who can help guide you through understanding your eligibility for this tax credit based on your specific financial situation. To find one near you, check out resources like CalCPA and San Francisco Chamber of Commerce who have lists of local CPA firms who can advise you accordingly. Just be aware that scammers may take advantage so always double-check credentials before engaging anyone!
Check your qualifications and eligibility
Eligibility Requirements
If your business was affected by the pandemic, you could be eligible for this refundable business credit of up to $26,000 per employee. The Employee Retention Tax Credit (ERTC) is available to businesses and non-profits of any size that closed or limited operations during the COVID-19 pandemic. Private businesses or tax-exempt organizations also qualify if they conduct a trade or business and were ordered to cease all operations or continue with some, but not all, of normal operations due to government orders.
To be eligible for ERTC in 2020, businesses must have 100 or fewer full-time employees and include qualified wages when calculating the credit. In 2021, businesses with 500 or more full-time employees may include qualified wages for each employee when calculating the credit. Qualified wages are all forms of wages subject to FICA taxes such as tips that are Medicare wages.
Be aware that you cannot use the same wages for claiming the ERTC and other tax credits or pandemic relief like a PPP loan; however, if your business received a PPP loan you still may be able to take advantage of ERTC since it does not double benefit from both programs.
For 2020, there is an annual cap of $10,000 on qualified wages per employee multiplied by 50% which equals out to a maximum amount of $5,000 per employee for the entire year while 2021 has a quarterly cap of $10,000 on qualified wages per employee multiplied by 70% which results in a maximum amount of $7,000 per employee for each quarter.
Businesses should consult archived Health Orders and Directives from San Francisco’s Department of Public Health as well as IRS Notice N2021-20 which has significant detail about what constitutes partial suspension in order to make an informed decision on their eligibility status regarding this tax credit program. There is no cap on employees who can benefit from ERTC so small businesses can easily take advantage; however beware scammers trying to falsely claim this credit and always seek professional advice from certified public accountants such as those provided through SF Chamber of Commerce or CalCPA before making any decisions about applying for this program.
How to Claim the Credit
Claiming a refundable business credit can be overwhelming, but don’t miss out on the incredible opportunity to receive up to $26,000 per employee with the ERTC!
To claim the credit, first determine if your business meets the eligibility requirements. Private businesses or tax-exempt organizations that conduct a trade or business may be eligible if they experienced either a partial suspension of operations due to government orders or lost money compared to before the pandemic.
If your business is eligible for the ERTC, then you must calculate your qualified wages. Qualified wages include all forms of wages that are subject to FICA taxes and tips may also be considered qualified wages as long as they are Medicare wages.
For 2020, apply a cap of $10,000 of qualified wages per employee across all quarters combined and multiply by 50% for your credit amount. In 2021, apply a cap of $10,000 of qualified wages per employee per individual quarter and multiply by 70%.
Finally, it’s time to file! You will need Form 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund which can be found on irs.gov. Be sure not to double benefit by utilizing the same wage amounts for claiming other credits or pandemic relief programs like PPP loan forgiveness; however, you can still take advantage of both opportunities if done correctly!
The Impact on Your Taxable Income
By claiming the ERTC, you can reduce your taxable income up to $26,000 per employee and potentially save thousands on taxes. This credit is designed to help businesses retain employees during the COVID-19 pandemic by providing them with a refundable tax credit.
Depending on the size of your business and number of employees, you could be eligible for this credit which will directly reduce your taxable income.
When calculating your ERTC for 2020, you’ll need to multiply the combined amount of qualified wages that are subject to FICA taxes for each employee up to $10,000 by 50% to determine the total ERTC amount.
This means that if an employee has earned $20,000 in qualified wages during 2020, only $10,000 of those wages would count towards the tax credit. For 2021, however, you’ll need to multiply qualified wages up to $10,000 per quarter by 70%.
This means that if an employee earns more than $40k in any quarter they can still qualify for the full credit as long as their annual total remains under $80k.
It is important to note that if your business received a PPP loan then you may still be eligible for the ERTC but cannot use wages applied towards forgiveness from PPP loans when claiming this tax credit.
Additionally, if you have already taken advantage of other pandemic relief or credits such as sick leave or family leave credits then double-benefiting from these programs will not be allowed when claiming this particular program so make sure all information provided is accurate and true.
When filing taxes this year it may be beneficial to investigate whether or not your business qualifies for the Employee Retention Tax Credit and take advantage of potential savings offered through this program.
Business owners should consult with their CPA or attorney before applying as there are multiple rules surrounding eligibility and changes between 2020 and 2021 calculations which must be considered when determining whether or not qualifying criteria has been met.
Maximum ERTC Benefit Amounts
You could receive up to $26,000 per employee in refunds from the Employee Retention Tax Credit program, so it’s worth exploring if you qualify. Knowing the maximum benefit amounts can help you understand how much of a refund you may be eligible for.
The ERTC eligibility rules are different in 2020 and 2021, so it’s important to be aware of the differences.
For 2020, businesses with 100 or fewer full-time employees may include qualified wages for all employees when calculating the credit. Qualified wages include all forms of wages that are subject to FICA taxes and tips may be considered qualified wages as long as they are Medicare wages.
To calculate your credit amount for 2020, multiply the qualified wages up to an annual cap of $10,000 by 50%. This will give you a maximum of $5,000 per employee for the entire year.
In 2021, businesses with 500 or more full-time employees may include qualified wages when calculating the credit. For this year, there is a quarterly cap on qualified wages at $10,000 which must be multiplied by 70% in order to determine your credit amount each quarter. This means that businesses can claim up to $7,000 per employee for each quarter in 2021.
It’s important to remember that businesses cannot double benefit by utilizing the same wages for claiming both ERTC and other tax credits or pandemic relief; however those who received PPP loans may still be eligible for ERTC as long as they do not use PPP loan forgiveness towards their ERTC calculation.
Be sure to consult with a certified public accountant (CPA) or attorney if you have any questions about eligibility or need assistance in filing claims!
Check your qualifications and eligibility
Qualified Business Expenditures
To take advantage of the Employee Retention Tax Credit, you’ll need to understand which expenses qualify for the program – so get ready to crunch some numbers.
Qualified business expenditures are wages that are paid to employees during the period when operations were partially or fully suspended due to a government order related to COVID-19. This includes salaries, hourly wages, bonuses and tips, as long as they are subject to FICA taxes. These qualified wages can be used both in 2020 and 2021 for the ERTC benefit amounts.
It’s important to note that these qualified wages must still meet all other eligibility requirements for the ERTC credit; if an employer was not required by law or government order to cease all operations or limit its normal activities, then those wages may not qualify for the ERTC credits.
Additionally, any wages applied towards PPP loan forgiveness cannot be counted towards your eligible ERTC benefit amount.
Finally, it’s also important to keep track of how much money is being spent on qualified business expenses; there are caps on how much money can be claimed per employee each year or quarter depending on when your claim is filed.
For 2020, businesses with 100 or fewer full-time employees may include up to $10,000 of qualified wages across all quarters combined per employee; this number raises up to $10,000 per employee per quarter in 2021.
To maximize your benefit amount from the ERTC program and ensure compliance with IRS regulations and requirements it’s important that you track your spending carefully and accurately document all claims made under this program.
Other Important Considerations
Making sure you have all the right information and do your due diligence is key when claiming the Employee Retention Tax Credit; this way, you can make sure to get the maximum benefit from it.
It’s important to be aware of scammers who may take advantage of businesses and individuals by trying to claim an ERTC.
Additionally, if your business received a PPP loan, then you may still be eligible for the ERTC, but you cannot use wages applied to your PPP loan forgiveness towards your ERTC.
To determine your credit amounts for 2020 or 2021, refer to IRS Notice N2021-20 which provides details on what constitutes a full or partial suspension of operations. Pay special attention to FAQs #17 and #18 as well.
Businesses should also consult with their certified public accountant (CPA) or attorney for specific advice in regards to the ERTC eligibility rules as they differ in 2020 and 2021.
For example, in 2020 businesses with 100 or fewer full-time employees may include qualified wages for all employees when calculating the credit whereas in 2021 that threshold is raised to 500 or more full-time employees.
Archived Health Orders and Directives from the San Francisco Department of Public Health are useful resources that provide details on what activities San Francisco limited and for how long as well as other pandemic relief information related to taxes.
It’s important not to double benefit by utilizing the same wages for claiming both an ERTC and other tax credits or pandemic relief offerings either.
Qualified wages typically include all forms of wages subject FICA taxes however tips may only be considered qualified if they are Medicare wages too.
For 2020 there is a cap of $10,000 per employee across all quarters combined multiplied by 50% while in 2021 there is also a cap but at $10,000 per employee per quarter multiplied by 70%.
The maximum amount available per year is $5,000 while it increases up to $7,000 per employee per quarter during 2021 respectively.
Keep in mind that this page serves only as general information about Employee Retention Tax Credits; it’s best practice not rely upon this page alone since it does not reflect most current developments nor should it be used as legal advice either.
Ultimately, consulting with local Certified Public Accountants through organizations such as SF Chamber of Commerce or CalCPA will help ensure that business owners receive specific advice tailored made according their individual situations so they can optimize their benefits from claiming an ERTC correctly without any issues later down the line!
Other important considerations: None.
Check your qualifications and eligibility
Conclusion
You’ve learned about the ERTC Tax Credit and what it could mean for your business.
To take advantage of this credit, you have to meet certain requirements and understand how it can affect your taxable income.
Make sure to explore all the qualified business expenditures that are eligible for the credit and any other considerations that may apply.
With the right information, you can make an informed decision about whether or not this tax credit is a good fit for you.
Make sure to research thoroughly before making any decisions – with careful planning, you could benefit from taking advantage of this tax credit!