Introduction
The Employee Retention Credit (ERTC) is a fully refundable tax credit for employers who are struggling financially due to the coronavirus pandemic. The credit is designed to incentivize employers to keep their employees on the payroll. This can help employers keep their businesses afloat and their employees employed during this difficult time.
The ERTC was first introduced in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020. The credit was then extended and expanded in the Consolidated Appropriations Act, 2021, passed in December 2020.
Eligibility
In order to be eligible for the ERTC, employers must meet certain criteria. The criteria vary depending on the size of the employer, but all employers must have experienced a “significant decline in gross receipts” due to the coronavirus pandemic.
Employers with fewer than 500 employees are eligible for the full amount of the credit, while employers with more than 500 employees may be eligible for a reduced amount. This credit is also available to employers that are self-employed.
Amount of Credit
The amount of the credit is based on the amount of wages paid to each employee. The credit is 70% of wages paid to employees, up to $10,000 in wages paid per employee. The maximum credit per employee is $7,000.
The credit is available for wages paid between January 1, 2022 and June 30, 2022. The credit may be claimed on a quarterly basis, or the employer may elect to claim the entire credit in a single quarter.
How to Claim the Credit
The ERTC is claimed on Form 941, Employer’s Quarterly Federal Tax Return. Employers are required to complete the form and attach it to their quarterly federal tax returns. Employers may also elect to receive a credit against their federal employment taxes.
Employers must also provide each employee with a Form W-2, Wage and Tax Statement, that reflects the amount of wages paid. This form must be provided to the employee by January 31 of the following year.
Conclusion
The ERTC is a valuable tax credit for employers who have been struggling financially due to the coronavirus pandemic. The credit is designed to incentivize employers to keep their employees on the payroll and can help employers keep their businesses afloat and their employees employed during this difficult time.
The credit is available for wages paid between January 1, 2022 and June 30, 2022. Employers must meet certain criteria in order to be eligible for the credit and must complete Form 941 and provide Employees with Form W-2 in order to claim the credit.
