The Employee Retention Tax Credit, a COVID-19 recovery financial assistance tool for small businesses, remains open and has undergone some recent changes
The Employee Retention Tax Credit (ERTC) can provide significant financial support for employers but it’s complex and continues to be under-used by many small employers eligible for the credit. To help, NFIB’s latest webinar features guest speakers from the U.S. Department of the Treasury: Deputy Benefits Tax Counsel Helen Morrison, and Attorney Advisor Amber Salotto.
A few key ERTC distinctions discussed during the webinar include the program’s expansion from 2020 to 2021. Those applying for ERTC – also known as the Employee Retention Credit (ERC) – on 2020 wages must have 100 or fewer employees and was subject to a full or partial suspension of operations by a government order or a 50% or greater decline in gross receipts compared to 2019. The credit can be up to 50% of $10,000 in wages, or $5,000 per employee.
In 2021, businesses with 500 or fewer employees qualify for the credit if they were subject to a full or partial suspension of operations by a government order or a 20% or greater decline in gross receipts compared to the same quarter in 2019. The credit can be up to 70% of $10,000 in wages, or $7,000 per employee per quarter for a maximum credit of $28,000 in 2021.
In both cases, ERTC is available for businesses that have received a PPP loan but the credit cannot be claimed on wages that were used to support PPP loan forgiveness. In other words, if you used a PPP loan to pay the entirety of an employee’s wages, you cannot claim an ERTC on that same employee’s wages. “You cannot double up on those wages, and qualified wages are only those that are paid during the period – either the quarter or the period during the quarter when the employer was eligible for the credit,” says Helen.
Even newer businesses are still eligible for the ERTC. “If an employer wasn’t in existence in 2019, the employer can substitute 2020 wages in for 2019,” said Amber. “This also applies to gross receipts.” She also mentions that the ERTC can still be applied to the wages of part-time employees, while self-employed individuals are not eligible.
The program has also been recently updated to include a new category of business: a “recovery startup business.” They are only eligible for the ERTC for the third and fourth quarters of 2021. These businesses, Amber says, are defined by “beginning to carry on a trade or business after February 15, 2020. The average annual gross receipts of the employer for [the same quarter in 2020] doesn’t exceed $1 million, and the employer doesn’t meet one of the other tests for being an eligible employer.”
To apply for the ERTC, owners should report qualified wages and the amount of credit they’re entitled to on their businesses’ IRS form 941 or 943, whichever they use for their federal tax returns. Businesses may also apply for an advance payment of the credit by filing IRS form 7200 and the advance will be subtracted from the rest of the credit once it’s received.
The webinar also discusses two additional tax credits available for employers. First, the federal paid leave tax credit, which offers a tax credit to owners who offer paid leave to employees who take time off for COVID-related reasons. Next, the experts discuss the COBRA Premium Assistance Credit. Both credits have many similarities to the ERTC and are opportunities for small businesses to access additional financial support.
As Helen puts it, all these tax credits “are referred to as ‘advanceable, refundable tax credits’. What does that mean? ‘Advanceable’ means you are entitled to receive the credit in advance of filing the employment tax return to claim the credit, while ‘refundable’ means you are entitled to receive the credit even if the amount of the credit exceeds the amount of tax owed.”
There is much more to the ERTC and its related programs discussed in the latest NFIB webinar. You can watch the full webinar-on-demand here.