Employee Retention Tax Credit Eligibility
As a business owner, you may be eligible for the new Employee Retention Tax Credit (ERTC) put in place by the IRS.
In this article, we’ll cover everything you need to know about ERTC eligibility criteria, qualifying wages, governmental orders, gross receipts dips, and more. We’ll also discuss limitations on tax deductions and how third-party payers are affected.
Get all the details so you can make an informed decision about whether or not to take advantage of this opportunity.
ERTC Eligibility Criteria
This section will help you understand qualifying for employee retention tax credits. A qualified employer is one that either experienced a full or partial suspension of its operations due to orders from an appropriate governmental authority related to COVID-19 or experienced significant declines in gross receipts during certain quarters. A partial suspension, in general, can be defined as a change to the company’s standard operating procedures.
The credit provides refundable and nonrefundable credits equal to 50% of qualified wages paid up to $10,000 per W-2 employee per year in 2020 and 70% of qualified wages paid up to $10,000 per W-2 employee per quarter in 2021. This credit applies only for wages paid in 2020 Q2, Q3, and Q4 and 2021 Q1, Q2, and Q3.
The eligibility criteria for businesses include not having more than 500 employees.
If these criteria are met, then any W-2 wages paid between March 13th, 2020, and Sept 31, 2021, are considered qualified wages for ERTC. Any qualified employer may take advantage of this tax credit.
Qualifying Wages
Figuring out if you qualify for this financial relief can be tricky, but understanding what wages are eligible is a great place to start. The Employee Retention Tax Credit (ERTC) is available to employers who experience a full or partial shutdown due to the pandemic, or whose gross receipts declined by more than 50% in 2020 and more than 20% in 2021 compared to the same quarter in 2019 gross receipts.
– **Eligible wages**: Qualified wages are limited to $10,000 per W-2 employee paid from March 13, 2020, to Sept 31, 2021. If the company was a start-up company in 2020 qualified wages can be extended to 12/31/21. Note that the wage cap in 2020 is per year and that the wage cap in 2021 is per quarter.
– **Ineligible wages**: Any wages that exceed $10,000 per employee for any one period of time do not qualify as ERTC eligible.
Furthermore, employers must be aware that ERTC-qualified wages may not be used towards other credits and deductions such as the Work Opportunity Tax Credit or Workforce Training Fund. Additionally, payroll covered by PPP loans does not disqualify the employer from receiving ERTC, but it may impact the total benefit.
Governmental Orders
Understanding the governmental orders that’ve been put in place due to the pandemic can be complicated, but it’s important to know how they affect you and your business.
Knowing which orders are relevant when determining employee retention tax credit eligibility is key. For instance, the Coronavirus Aid, Relief, and Economic Security (CARES) Act requires employers to provide paid sick leave if their employees are affected by COVID-19. This requirement applies no matter how many people work for an employer and is essential when calculating qualifying wages for employee retention credits.
Additionally, other government orders such as the Families First Coronavirus Response Act also impact employee retention tax credit qualifications. This act requires businesses with fewer than 500 employees to provide paid family medical leave if needed due to a public health emergency caused by COVID-19.
Understanding the impact of each order on your business is crucial for properly claiming employee retention tax credits and avoiding costly penalties or disqualification from future tax benefits.
The Department of Labor has issued guidelines regarding these governmental orders that can help you navigate them successfully. As long as employers understand what types of wages qualify for these credits and how each order affects their business specifically, they should have no issue determining their eligibility for employee retention tax credits during this unprecedented time period.
Decline in Gross Receipts
Facing a decline in gross receipts due to the pandemic was overwhelming, for many companies. As an eligible employer, you may qualify for the Employee Retention Tax Credit (ERTC) which could provide relief and compensation for retaining your W-2 employees during this tough time. Here are two ways that the ERTC could help:
- It provides a substantial refundable tax credit of qualified wages paid by employers to retain and keep their employees on payroll.
- It is available for wages paid in Q2, Q3, and Q4 of 2020 and Q1, Q2, and Q3 of 2021.
The ERTC was designed to provide relief and support for businesses who kept employees on payroll during this crisis – so take advantage of it if you’re eligible! This could be just what you need right now; don’t miss out on possible relief from the IRS.
Stay Up to Date on ERTC Issues
Employers must remain up-to-date with many changes and revisions that have been made to the original employee retention tax credit program and understand how these changes might impact them financially. Additionally, understanding which forms need to be filled out accurately will ensure timely payments so that businesses may receive their deserved credit quickly and without issue.
It’s important to ensure that all necessary information is provided for the employee retention tax credit to be correctly applied. This includes providing accurate information on wages paid, hours worked, as well as filing a Form 941 and other relevant documents. Additionally, employers should be able to provide proof of payment from the third-party payer – which could include bank statements or payroll reports – to qualify for the credit.
Employers are responsible for ensuring that all payments are made in accordance with applicable federal and state laws regarding tax withholding and reporting requirements. Any discrepancies found should be promptly addressed so that corrections can be made before filing returns or taking advantage of any available credits or deductions. Furthermore, employers should also review any agreements they have with their third-party payers to ensure accuracy and completeness.
Tax Deduction Limitations
You must be aware of the limitations when it comes to tax deductions, or else you risk missing out on potential savings.
When it comes to employee retention tax credit eligibility, one of the key considerations is the limitation on the deductibility of wages paid to employees who receive such credits. Generally, only wages paid in excess of $10,000 are eligible for a deduction. This means that if an employer pays an employee more than $10,000 in wages during a single calendar year and those wages qualify for a retention credit, then only the amount over $10,000 is deductible. Additionally, any bonus payments made to employees that exceed certain limits may not be eligible for a deduction either.
Conclusion
You’ve now learned the eligibility criteria, qualifying wages, governmental orders, gross receipts dips, and the importance of staying up-to-date on issues concerning the employee retention tax credit.
With all of this information in hand, you’re armed with the knowledge necessary to determine if your business is eligible and how best to take advantage of the employee retention tax credit.
The key is to stay informed and work with a reputable company that understands the many revisions to the original ERTC program so you can maximize your savings and ensure compliance with government regulations.
Call the ERTC Help Desk for assistance with all things pertaining to this business relief program!
