Was your business negatively impacted by the COVID-19 Pandemic? If so, you may be eligible for an Employee Retention Tax Credit (ERTC) of up to $26,000 per W-2 employee.
What Is The Employee Retention Tax Credit (ERTC)?
The Employee Retention Tax Credit (ERTC) is exactly what it sounds like – it’s a tax credit that was made available to businesses that were negatively impacted by the COVID-19 Pandemic. Essentially, it’s a stimulus program that was created to help businesses pay and retain their employees, allowing them to not only remain functional and operational but to also ensure that their employees were able to feed and provide for themselves and their families during the COVID-19 pandemic time period as well.
The ERTC is available to both small and medium sized businesses, which include those that consist of greater than at least one, but not more than 500, W-2 employees. It was established as part of the CARES Act and is a refundable tax credit. Therefore, it is a grant – that if eligible for, you may claim for your business. It’s important to note the fact that this being a grant, and not a loan – it’s not money you would have to pay back. Furthermore, the ERTC is not taxable, as it is a tax credit and therefore not subjected to federal income tax requirements.
How Do I Know If My Business Qualifies And Is Eligible For The Employee Retention Tax Credit (ERTC)?
In order for your business to qualify and be eligible for the ERTC, it must meet certain requirements. The most important of those requirements is that your business was negatively impacted during the COVID-19 Pandemic (March 13, 2020 to December 31, 2021).
According to www.census.gov, the coronavirus (COVID-19) pandemic negatively impacted more than 45% of companies across the country. However, this number is mostly based off of calculated, measured, quantifiable data, such as a sharp decline in gross revenue. Of course, there are several other factors beyond just a decline in gross revenue and are not easily as measurable. For example, such as a disruption in the supply chain or a reduction to the hours of operations – which both, still undoubtedly could have negatively impacted a business during the COVID-19 Pandemic. In addition to these, there are several other qualifying factors as well – each falling into one of two categories:
- The Business was Impacted by a Decline in Gross Revenue
- The business endured a significant loss in gross revenue (compared to that of its gross revenue in 2019).
- 50% decline in gross revenue in 2020 compared to 2019
- 20% decline in gross revenue in 2021 compared to 2019
- Nominal Business Impact
- The business had its operations fully or partially suspended (per government mandates at the local, state, or federal level).
- The business was required to change or reduce its hours of operations ((per government mandates at the local, state, or federal level).
- The business was required to make additional changes in its hours of operation or employee shifts to ensure the safety and wellbeing of its employees and customers. (e.g., additional time needed to clean, disinfect, and sanitize the workplace)
- The business had limitations placed on the employee-workplace environment.
- The number of individuals that were allowed to be in a room or building at a given time (per government mandates at the local, state, or federal level).
- The inability for employees to use or access certain tools or equipment.
- A reduction to the overall quality and morale of the employee workplace environment due to such limitations.
- Ensuring proper PPE was worn.
- The business had to deal with disruptions in supply chain.
- Directly – such as not being able to or having the limited ability to produce or provide a certain product or service.
- Indirectly – such as being affected by delays or disruptions in supply chains of vendors or other business to business partnerships that were needed for your business to be fully functional and operational.
- The inability to work with vendors or partake in other business to business partnerships.
- The inability or limitations to attend networking events.
- A general, limited capacity to operate (i.e., negative impact on overall efficiency)
- A reduction to the quality of goods and or services offered to customers.
- Projects or business deals being delayed or canceled due to disruptions related to the COVID-19 Pandemic.
*It’s important to note, that in order to qualify for one of the criteria mentioned above, such must be applicable to the calendar quarter(s) from March 13, 2020 to December 31, 2021. While this may be subject to change and extend an additional quarter, this has not yet officially been declared.
What If I Already Claimed And Received A Ppp Loan? Am I Still Eligible To Qualify For The Employee Retention Tax Credit (ERTC)?
You may be surprised to learn this, but the answer is YES! There has often been a misunderstanding between eligibility for ERTC and those who have already claimed and received a PPP loan. However, this is not the case. As long as your business meets any of the factors that are required to be eligible, business owners can receive both the PPP and the ERTC. Furthermore, both of these claims may be filed retroactively even if the original deadline for the filing date was missed.
If I Qualify For The Employee Retention Tax Credit (ERTC), How Much Money Am I Able To Claim?
The ERTC is calculated differently for 2020 and 2021.
2020 ERTC Calculation:
- For 2020, the tax credit calculated at a rate of 50% of the qualified employee wages
paid, up to $10,000 per qualified employee in wages and healthcare, for that year.
- Therefore, the maximum amount in 2020 that can be claimed per qualified employee is $5,000, for that year.
*Note: Any employer that does qualify for the ERTC and had less than 100 full-time, W-2 employees in 2019, may claim the credit for all employees that were paid wages in 2020.
2021 ERTC Calculation:
- For 2021, the tax credit is calculated at a rate of 70% of the qualified employee wages paid, up to $10,000 per qualified employee in wages and healthcare, for each quarter.
- Therefore, the maximum amount that can be claimed in 2021 per qualified employee is $7,000, for each quarter.
- Currently, the maximum amount that can be claimed in 2021 is thus $21,000 (the first three quarters). However, as mentioned above, this may be extended to the fourth quarter of 2021, but has not yet been made official.
*Note: Any employer that does qualify for the ERTC and had less than 500 full-time, W-2 employees in 2019, may claim the credit for all employees that were paid wages in 2021.
As you can see, given the way the ERTC is calculated for employees in 2020 – being a maximum amount of $5,000, and in 2021, being a maximum amount of $21,000 – the total amount of the employee retention tax credit that can be claimed, per employee, is up to $26,000 ($5,000 (2020) + $21,000(2021)).
If I Qualify And Apply To Claim The Employee Retention Tax Credit (ERTC), How Soon Will I Know How Much I Am Eligible To Receive?
Because we have teamed up with some of the most highly skilled tax firms in the country, all of the data is inputted into a top of the line, proprietary software, that is specifically used for tax related matters. That said, we are able to inform you how much your return will be in less than 72 hours.
How Long Does It Take For Me To Receive The Employee Retention Tax Credit (ERTC) If I Qualify And Apply To Claim It?
Given the ERTC refund comes directly from the IRS, conservatively speaking, it can take anywhere from 3 months at the earliest, up until 8 months at the longest.
What Is The Minimum Number Of Employees You Need To Have In Order To Qualify For The Employee Retention Tax Credit (ERTC)?
The minimum number of employees you need to have in order to qualify for the ERTC is just one. You cannot claim the ERTC, however, if you have more than 500 employees.
So, as long as you have at least one, but not more than 500, full-time, W-2 employee that were paid wages in 2020 and or 2021, and you meet the general qualifying criteria for eligibility mentioned above, you can claim the ERTC.
Please note, however, that you cannot claim the ERTC if that one employee that was paid wages in 2020 and or 2021, was you, the business owner. Additionally, that one employee cannot be an immediate family member (mother, father, husband, wife, brother, sister, son, daughter) either.
That said, regardless of the number of employees your business has, you, nor any immediate family member, would be eligible to qualify as a paid employee per these stipulations.
Are There Any Factors That Would Disqualify Me Or Make Me Ineligible To Receive The Employee Retention Tax Credit (ERTC)?
Aside from not being able to claim the ERTC for yourself as an employee, or an immediate family member, there are not many restrictions.
The only other restrictions are:
- The ERTC cannot be claimed by a state or local government employer.
- An employer cannot claim those individuals employed via 1099 as valid, qualifying, eligible employees with respect to the ERTC program.
Will I Ever Be Required To Pay Back The Employee Retention Tax Credit (ERTC)?
No. The ERTC is a tax credit. It is a grant, not a loan – and therefore does not have to be forgiven or paid back. It is a permanent refund that is yours and that you get to keep.
Additionally, because this is a tax credit, the amount you receive is not subject to federal income tax.
What If I Own A Restaurant Or Bar? How Are Tipped Wages Treated? Do They Count As Qualified Wages As Far As The Employee Retention Tax Credit (ERTC) Is Concerned?
According to the IRS, tipped wages would be eligible as qualified wages if these wages were subject to the Federal Income Contribution Act (FICA). In essence, any tipped wages that are more than $20 in a calendar month for an employee, then all tipped wages would be eligible to be qualified wages with respect to the ERTC.
Is There A Limit As To How Much Money Businesses Are Able To Claim Through The Employee Retention Tax Credit (ERTC)?
The only limits are the limits set in place within the stipulations listed above – the maximum dollar amount per employee, and the total number of employees.
Hypothetically speaking, the maximum amount a business may qualify for is $13,000,000 ($26,000 (max per employee) x 500 (max number of employees)). Contrastingly, the minimum amount a qualifying employer may be eligible to claim would be $5,000 (the max per employee, for 2020, if 2020 is the only year that applies). Obviously, these are two extremes – but technically speaking, may be possible.
Is There A Filing Deadline Date That I Have To Claim The Employee Retention Tax Credit By?
The filing deadline date to apply for the ERTC is April 15, 2024 – for ERTC claims for 2020.
The filing deadline to apply for the ERTC is April 15, 2025 – for ERTC claims for 2021.
*Remember, a business can file a claim for the ERTC retroactively, which is why these deadlines may seem far past the time period in which the money is being claimed for.
What If So Many Businesses Claim The Employee Retention Tax Credit (ertc) That There Isn’t Enough Money To Fulfill My Claim?
There is no need to worry. Fortunately, there is no limit set in place or fixed amount that can be collectively claimed before the filing date deadline. Not to mention, it’s not like the government is going to all of a sudden run out of money. The funds necessary to accommodate businesses who are eligible for the ERTC have already been set in place by The CARES Act and therefore, will be paid out as needed.
If I Do Qualify For The Employee Retention Tax Credit (ERTC), What Information Do I Need To Move Forward In The Process?
The overall process is relatively simple in terms of what’s needed on your end.
- Legal Name of Business
- Name of Business (if doing business as)
- Employee Identification Number (EIN)
- Address of the Business
- Point of Contact (i.e., owner, accountant, office manager, etc.)
- Contact information (phone number, email)
- IRS Forms (941 and 941-x)
*IRS Form 941 – is a tax specific form used to file quarterly federal tax returns, which includes employee retention tax credit claims
*IRS Form 941-x – is a tax specific form used to correct any errors made on a previously filed 941 Form. This is the form, however, that will be used to claim the employee tax retention credit retroactively.
Does My Business Have To Be Considered “essential” In Order To Receive The Employee Retention Tax Credit?
No. The business does not have to be considered “essential” to receive the ERTC. Essential status has no impact on the ERTC. So, whether “essential,” or not – what matters is that qualifying criteria mentioned in the above.
What If My Accountant Already Told Me I Do Not Qualify For The ERTC?
Given the common misconception of receiving PPP loans making a business ineligible for the ERTC – which as stated above, is not true – we encourage all business owners who think they may qualify, regardless of what their accountant or anyone else told them, to inquire anyway – as long as they believe they meet the aforementioned qualifying criteria.
Even if your accountant says you don’t qualify because you already filed for the ERTC, we want to make sure the maximum amount, for each year and quarter, was claimed. Additionally, if the 2021 ERTC period becomes extended for an additional quarter, even those who have already claimed the maximum amount for 2020 and the first three quarters of 2021, would now be eligible again for the fourth quarter of 2021.
Remember, this has not happened as of yet, nor is it a definite. However, it is still a possibility and something you want to keep your eye out for.
What If My Business Did Not Show A Decline In Revenue Or Was Shut Down? Am I Still Eligible To Claim The Employee Retention Tax Credit (ERTC)?
As mentioned in the above, a decline in revenue and a partial or full shutdown of your business are only two of many factors that can qualify you and make you eligible to receive the ERTC.
Does Claiming The Employee Retention Tax Credit (ERTC) Increase My Chances Of Becoming Audited By The Irs? If So, What Happens If I Am Audited?
If you qualify and are eligible to claim the ERTC – and you do so, it does not increase the chances of your business becoming audited by the IRS anymore likely than it would if you decided not to claim the ERTC.
Given this fact, however, any business can be audited by the IRS, at any time. – But not to worry, as we have teamed up with an experienced team of highly qualified tax attorneys that will guarantee full audit protection and litigate on your behalf, at no additional cost, if the situation ever were to occur. Contact Dolman Law Group for a free consultation today.