A little-known government aid that has Huge Benefits
While ERTC is the smallest of the federal employment programs It can be a huge help to businesses struggling to retain their employees. It is a significant tax credit that has served as a lifeline for many small business owners who were forced to cut their spending in order to withstand the constant surge of unanticipated events that have crashed into the business world over the past several years.
Small-scale business owners can cut down on their payroll taxes by taking advantage of the Employee Retention Credit. This credit allows them to claim an income tax credit from the federal government up to 70% of the wages paid in a quarter. It’s a simple process, however, it does require some patience, organization and knowledge of how to claim it properly.
Despite this, many employers have been overwhelmed and dissatisfied by the complexity of this program and its eligibility requirements. Fortunately, there is new guidance available from the IRS that can help guide businesses through this process and help ensure that they maximize their available funds.
The Employee Retention Tax Credit is a tax credit available for employers who have been affected by the pandemic. This credit was initially accessible to companies that had shut down due to COVID-19. However, the CARES Act expanded it to include all eligible employers.
A business that was not able to recruit 30 or fewer full-time employees in the previous tax year and is affected by COVID-19 is an eligible employer. An eligible employer must have experienced a significant decline in gross receipts during the time of the government order that put the company at risk.
For 2020 quarters, a significant decline in gross revenue is measured by a decrease of more than 50% compared to the same quarter in 2019. The 2021 credit is dependent on a 20% decrease in gross receipts in comparison to the same quarter in 2021.
To be eligible for this credit the employer must have reduced its payroll deposit or withdrawn an advance of the credit. This is done by filing Form 7200 Advance Payment of Employer Credits Due COVID-19. The IRS will issue a refund of the amount that was withdrawn however, the repayments must be made before the end of the fourth quarter of 2021, or within 10 days of filing an employment tax return that includes the fourth quarter of 2021.
This tax credit can be a powerful tool to help companies that have been impacted by the current health crisis. It could also be a useful tool for companies who are experiencing growth or want to expand into new markets.
Making Sure You Have Your ERTC Eligibility Right
To be eligible to be ERTC eligibility the employer must not be able to pay its employees in one quarter due to governmental orders that forced the business to shut its doors. It must have paid its employees a salary within a quarter and be in operation during a similar quarter in 2019 (for the 2020 credit) or in a comparable quarter in 2021 (for the credit of 2021).
An eligible employer must also have completed a tax return that covers the tax year in question, which must contain the date of any government orders that caused the company’s closure. In some cases it can be difficult to determine, so it’s best to seek assistance from a trusted financial professional. They will be able to identify your company’s eligible payroll and provide you with correct forms. They will also be able to explain how your ERTC claims must be processed and sent to the IRS.