Maximizing the Employee Retention Tax Credit: Insights from a CPA

March 15, 2023

CPA Kristi Stone Explains Employee Retention Tax Credit Tips for Small Business Owners

Maximizing the Employee Retention Tax Credit: Insights from a CPA

Tax season has arrived, so CPA Kristi Stone appeared on a recent NFIB Small Business Legal Center webinar to answer questions on the tax issues important to small business owners. Stone is a specialist on the Employee Retention Tax Credit (ERTC, also known as the ERC), and she broke down what small business owners should know about this important tax credit. The ERTC can still be claimed retroactively and can provide significant refundable payroll tax credits, up to $26,000 per employee, to eligible employers for both the 2020 and 2021 tax years. The ERTC is a refundable tax credit available to employers based on wages paid to employees from March 13, 2020 through the first three quarters of 2021. Small business owners can apply for the ERTC if their business experienced a decline in gross receipts (at least 50% decline for 2020 quarter; at least 20% decline for 2021 quarter) compared to the same quarter in 2019; or if their business experienced a full or partial suspension of business operations due to a government order. “The total potential credit is $21,000 per employee in 2021,” Stone said. “Plus another $5,000 per employee in 2020. So, if you qualify for all quarters, you could qualify for up to $26,000 of credit per employee for the entire ERTC. It’s really an amazing credit if you qualify.” The deadline to file for the ERTC is generally three years from the date that the employer filed their original IRS Form 941 to report withheld income taxes, Social Security taxes, and Medicare taxes from employee paychecks. While most businesses cannot claim the ERTC for wages paid beyond Q3 2021 (September 31, 2021), recovery startup businesses might be eligible for Q4 2021. The ERTC for businesses that started during the COVID-19 pandemic is capped at a total of $50,000 per quarter for Q3 and Q4 of 2021. The IRS defines a recovery startup business as an employer that meets each of the following criteria:

The business began carrying on a trade or business after Feb. 15 of 2020.
The business has not exceeded $1,000,000 in average annual gross receipts.
The business does not meet the normal ERTC eligibility criteria of a full or partial suspension of operations or a decline in gross receipts.

Stone warns that recovery startup business status is determined separately for each quarter. “For example, if an eligible employer is a recovery startup business in Q4 of 2021 but is not a recovery startup business in Q3 of 2021 because it met the gross receipts requirements or because it had a partial suspension, then the $50,000 limitation would only apply for Q4 and not Q3.” For those who own multiple businesses, she also notes that aggregation rules can affect your recovery startup business’ ERTC eligibility. “If you own multiple businesses and the new business is under common control with other pre-existing businesses that began before Feb. 15, 2020, that new business would have to be aggregated with those pre-existing businesses and therefore it would not meet the recovery startup requirements.” She also mentions that small businesses under common control must all meet the ERTC requirements if any of them want to collect on the ERTC. Stone continued to discuss how to make tax season simpler and easier, how to determine if third-party companies offering assistance in filing ERTC claims can be trusted, and more. She also answered several questions from webinar attendees.

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Topics:

Taxes

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