The Extended Employee Retention Tax Credit (ERTC): What Small Businesses Should Know

The ERTC Explained

The Employee Retention Tax Credit (ERTC) is a federal tax credit designed to help businesses keep employees on their payroll during the COVID-19 pandemic. It was originally introduced in the CARES Act in March 2020 and has been extended and expanded several times since then.

The ERTC is available to eligible employers that have experienced a significant decline in gross receipts or were fully or partially shut down due to government orders related to COVID-19. The credit can be claimed on wages paid to employees from March 13, 2020, to December 31, 2021. The credit amount is up to 70% of the first $10,000 of qualified wages per employee per quarter, which translates to a maximum credit of $7,000 per employee per quarter, or $28,000 per employee for the entire period.

The ERTC can be a valuable tool for small businesses struggling to retain employees during the pandemic. By providing a tax credit for retaining employees, the ERTC can help businesses reduce their payroll costs and improve their cash flow, which can be critical for staying afloat during these difficult times. The credit can also help businesses avoid layoffs and maintain their workforce, which can be especially important for businesses that are facing a shortage of qualified workers or that rely on highly skilled employees.

To be eligible for the ERTC

To be eligible for the ERTC, businesses must meet certain qualifications. First, the business must have been in operation during the calendar year 2020 or 2021. Second, the business must have experienced a significant decline in gross receipts in one or more calendar quarters in 2020 or 2021 compared to the same quarter in 2019. The decline in gross receipts must be at least 20% for the 2020 tax year or 2021, and at least 10% for the 2021 tax year.

Alternatively, a business may qualify for the ERTC if it was fully or partially shut down due to a government order related to COVID-19. This includes businesses that were forced to close their doors or that were limited in their operations due to social distancing measures or other restrictions.

It's worth noting that businesses that received a Paycheck Protection Program (PPP) loan are still eligible for the ERTC, but they cannot claim the credit on the same wages that were used to calculate the PPP loan forgiveness. This means that businesses that received a PPP loan may still be able to claim the ERTC on other eligible wages.

The ERTC has undergone several changes since it was first introduced, and the time frames for claiming the credit have also been extended. Initially, the credit was only available for wages paid from March 13, 2020, to December 31, 2020. However, it was later extended through June 30, 2021, and then further extended through December 31, 2021. This means that businesses may be able to claim the credit on eligible wages paid through the end of 2021.

Overall, the ERTC can be a valuable resource for small businesses struggling to retain employees during the COVID-19 pandemic. By providing a tax credit for retaining employees, the ERTC can help businesses reduce their payroll costs and improve their cash flow, which can be critical for staying afloat during these difficult times. To qualify for the credit, businesses must meet certain qualifications related to their operations and their financial situation, but many businesses may be able to take advantage of this valuable tax credit.