What is ERTC? Still, Time to Claim the Employee Retention Tax Credit for 2021

The employee retention tax credit (ERTC), also known as the employee retention credit (ERC), was a valuable COVID-era tax credit in 2021 that is still available to be claimed on amended tax returns. With over $8 billion in remaining unclaimed funds, businesses can get significant refunds from this refundable tax credit. Read on to learn everything you need to know about claiming this credit in 2024 before it expires.

This article will cover what the ERTC is, who qualifies, how much credit can be claimed, and step-by-step instructions for amending tax returns to claim the credit. With the help of a tax professional to avoid errors, the ERTC presents a major opportunity to get back tens of thousands in payroll tax funds previously paid in 2021.

What is the Employee Retention Tax Credit?

The ERTC is a refundable tax credit that was introduced in 2020 to help employers retain employees during the COVID-19 pandemic. For 2021, certain employers could claim up to $7,000 per employee in ERTC funds.

This tax credit applied to qualified wages paid to employees during COVID-19 related full or partial suspensions of operations or declines in gross receipts in 2021. The credit amount equals 70% of qualified wages (including certain health plan expenses) paid to employees, up to $7,000 per employee per quarter.

So in total for 2021, employers could claim up to $28,000 per employee in ERTC as a refundable credit against their share of Medicare tax or by requesting an advance refund of the credit amount.

Who Qualifies for the 2021 Employee Retention Credit?

To be eligible for the 2021 ERTC retroactively, the business or tax-exempt organization must fall under either of these two categories:

1. Experienced a full or partial suspension of operations during any quarter in 2021 due to a COVID-19 related government order
2. Experienced a decline in gross receipts of at least 20% when compared to the same quarter in 2019 (eligibility ends when gross receipts in a quarter exceed 80% of the comparable 2019 quarter)

Exclusions: Those who received a Paycheck Protection Program loan generally cannot claim the ERTC for wages paid with the loan funds.

How Much Can Businesses Claim with the ERTC?

• For 2021, businesses can claim up to $7,000 per employee in ERTC per quarter
• In total for 2021, up to $28,000 per employee
• It equals 70% of qualified wages (including health plan expenses) paid to the employee during the eligible quarter up to $10,000 in wages per employee per quarter. Learn More:

So, for example, if you paid an employee gross wages of $30,000 per quarter in 2021, you could claim a maximum of $7,000 per employee for that quarter.

The credit is fully refundable – so if it exceeds the employer’s share of Medicare tax, the IRS will send a refund of the remainder.

Step-by-Step Guide to Claiming the ERTC

Follow this checklist to claim the ERTC and get back those payroll tax dollars:

1. Review Eligibility for Each Quarter

Review your eligibility criteria each quarter – did you have a 20% decline in gross receipts or a full or partial suspension warranting the ERTC? Document evidence to support your eligibility.

2. Identify Qualified Wages Paid

Gather payroll records and identify employee wages during eligible quarters, including health plan expenses. Remember the limit – $10,000 per employee per quarter.

3. Calculate ERTC Amount

Calculate 70% of qualified wages for each eligible quarter to determine your ERTC. It can reduce your share of Medicare tax to zero, and any excess is refundable.

4. Amend Payroll Tax Returns

File Form 941-X to claim the ERTC for each quarter on amended returns. Work with a tax pro to avoid mistakes.

5. Request Advance ERTC Refunds

If your ERTC amounts exceed payroll taxes paid for a quarter, file Form 7200 to request advance refunds from the IRS for the credit now rather than waiting to file your 2021 return.

Claiming the Credit by 2024

The ERTC can still be claimed for 2020 and 2021, but ixpires after 2023. Any eligible employers who have not yet amended returns or claimed ERTC should consult a tax professional and file Form 941-X before the opportunity disappears after the 2024 tax year!

 FAQ: 

Q: How does the ERC credit work as per IRS guidelines?

A: The Employee Retention Credit (ERC) is a refundable payroll tax credit available for businesses severely affected by the pandemic. Eligible employers can claim this credit as per the conditions defined by the IRS. The ERC credit was designed to motivate employers to retain employees during hardships.

Q: What are the eligibility criteria to claim the employee retention credit?

A: To claim the employee retention credit, firstly, employers must have had their operations fully or partially suspended due to a government order. Alternatively, employers that have experienced a significant decline in gross receipts may qualify for the credit. Specific eligibility conditions may vary according to the IRS guidelines and the quarter of 2021 in context.

Q: How do you apply for the etc as an employer?

A: To apply for the ERTC, employers must report their total qualified wages and the related health insurance costs for each quarter on their employment tax return. Specific documentation is also required to support the claim. For accurate filings, you can consult a tax professional.

Q: How does the credit claim process work for the ERC?

A: The credit claim process involves several steps, including calculating the credit, documenting the eligibility, and including the calculated credit on the employment tax return. The process may vary depending on specific circumstances according to IRS guidelines.

Q: Are ertc claims applicable for all four quarters of 2021?

A: According to the IRS, the ERTC is available for the first three quarters 2021. Different conditions may apply for the fourth quarter. Therefore, employers should consult a tax professional to maximize their credit opportunities.

Q: What precautions can be taken to avoid ERC scams?

A: To avoid ERC scams, relying only on information from credible sources like the IRS is essential. Also, employers should work with trusted tax professionals or directly with the IRS to file their claims. Verification of all pieces of information before passing sensitive data is an effective way to avoid scams.

Q: How does the refundable payroll tax credit work under the ERC scheme?

A: The refundable payroll tax credit under the ERC allows employers to reduce the social security tax they owe. If the credit exceeds the tax portion, the extra will be refunded to the employer. However, typical refund processing time should be expected.

Q: Who can qualify for the employee retention tax credit?

A: Employers who have had their operations either fully or partially interrupted due to a government-imposed order or have seen a significant decline in revenue during a quarter of 2021 are generally eligible to claim the ERC, subject to certain conditions according to the IRS.

Q: How do ERC’s credit claims impact the federal tax?

A: The ERC claim can reduce the employer’s federal employment tax, including the Social Security tax. If the ERC exceeds the employee portion of these federal taxes, the difference is refunded to the employer, potentially reducing an employer’s overall federal tax liability.

Q: Where can you find reliable information about employee retention tax credit claims?

A: For the most accurate and updated information about the ERTC, employers should refer to the official IRS website or consult a tax professional. Also, there are many IRS publications and online tax forums where employers can find valuable information about the employee retention tax credit.

Key Takeaways

• COVID-era tax break for retaining employees
• Refundable credit up to $28,000 per employee
• File 941-X to claim against 2021 payroll taxes
• Expires after 2023 – take action now

With over $8 billion in remaining unclaimed funds, the ERTC presents a valuable opportunity for eligible employers who have not yet claimed the credit for 2021. By working with a tax professional to avoid mistakes, companies can claim this credit over the next two tax seasons before it disappears. Review your eligibility and file amended returns to claim this substantial tax break! Learn More: