What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit (ERTC) is a federal tax credit established as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the COVID-19 pandemic. The ERTC provides a refundable tax credit to eligible employers that suffered a significant decline in gross receipts or who have faced a full or partial suspension of operations due to government-mandated shutdowns related to COVID-19.
The ERTC was designed to help eligible employers retain their employees and cover the costs of paying qualified wages. The ERTC is available for qualified wages paid between March 13, 2020, and December 31, 2021. In 2020, the credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee for the entire year. In 2021, the credit rate increases to 70% of qualified wages, with expansions to include certain employers who have experienced a decline in gross receipts even if they have not fully suspended operations.
When should a company apply for the ERTC?
An eligible employer should apply for the Employee Retention Tax Credit (ERTC) as soon as possible, to maximize the benefits of this valuable credit. Eligible employers can claim the ERTC by filing Form 941, Employer’s Quarterly Federal Tax Return, for each quarter in which they have paid qualified wages to their employees.
Eligible employers should also be aware of the deadlines for filing Form 941 and claiming the ERTC. Employers must file Form 941 by the end of the month following the end of each quarter. For example, if an employer paid qualified wages in the first quarter of 2021, it must file Form 941 by April 30, 2021. The ERTC deadline for the 2020 tax year is April 15, 2024, and April 15, 2025 for the 2021 tax year.
In addition to the deadlines for filing Form 941, eligible employers should also be aware of the deadlines for claiming the ERTC on their annual tax return. The ERTC is a refundable tax credit, which means that eligible employers can receive a refund of the credit if it exceeds their federal tax liability. To claim the ERTC on their annual tax return, eligible employers must file Form 941 for each quarter in which they have paid qualified wages, and must also file Form 5884, Employee Retention Credit, with their annual tax return.
PM Business Advisors has assisted dozens of clients claim the Employee Retention Tax Credit. Please get in touch with us if you have any questions regarding your eligibility for the ERTC.