New Employee Retention Tax Credit for Small Businesses

Date: January 11, 2021

Update: The ERTC was updated and extended by the American Rescue Plan Act of 2021 (ARPA) signed into law on March 11. Click here for the latest, updated ERTC tip sheet.

Talk to your tax professional or bookkeeper about taking advantage of the expanded Employee Retention Tax Credit (ERTC). Don’t have a tax professional? You can check here to find one in your area.

The new federal economic recovery bill signed into law last month extends the ERTC program through June 30, 2021, offers a more generous tax credit, and eliminates a previous restriction for those with a Paycheck Protection Program (PPP) loan. 

What it is: The ERTC is a refundable, advanceable tax credit of up to $10,000 per employee, per quarter, and an annual max of $14,000 per employee. The credit rate is 70% of qualified employee wages.

Eligibility: Employers with 500 or fewer employees that have experienced a 20% or more decline of gross receipts in a quarter compared to same quarter in 2019.

Time frame: Employers can receive the credit for Q1 and Q2 of 2021. But ask your tax professional to look back to see if you can also claim the tax credit for 2020.

How it works: Employers claim the tax credit by withholding payroll taxes for qualified employee wages. Because the tax credit is refundable, the IRS will send you a check for the remaining amount of your tax credit if your withholdings do not cover the entire tax credit.  

ERTC and PPP: Employers who receive or received a PPP loan will qualify for the credit with respect to wages that are not paid for with forgiven PPP loan proceeds.

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