With tax season fast-approaching, businesses should pay special attention to the Employee Retention Tax Credit and its interplay with the Paycheck Protection Program (PPP). Talk to your tax specialist and payroll companies today to see how your business can take advantage of this COVID relief option and how to maximize these benefits while also receiving PPP loan forgiveness.
What is the Employee Retention Tax Credit?
The CARES Act created a refundable employee retention tax credit (ERTC) against the employer share of the Social Security Tax on wages. The Consolidated Appropriations Act (CAA) extended the ERTC through June 30, 2021, while also modifying the credit both prospectively and retroactively.
For wages paid after March 12, 2020, and before January 1, 2021, the ERTC can be applied to 50% of qualifying wages up to $10,000. This means a maximum of $5,000 per employee could be credited back to your company if it qualifies.
For wages paid after January 1, 2021, and before July 1, 2021, the ERTC can be applied to 70% of qualifying wages of up to $10,000 per quarter. This means companies could receive a maximum of $14,000 per employee through June 30.
Click here for a clip from BRAC’s Small Business Series Webinar where Benjamin Vance, CPA/ABV with Postlethwaite & Netterville, explains the ERTC.
What if we received a Paycheck Protection Program loan?
Employers are able to claim the ERTC even if they received a PPP loan. However, PPP funds and ERTC cannot be used to cover the same payroll costs. PPP loan recipients applying for forgiveness may wish to claim as many non-payroll costs in their PPP forgiveness application as possible in order to increase their potential for an ERTC.
Is my business eligible?
As of December 2020, employers with 500 or fewer employees are able to claim the ERTC if they had a revenue reduction in 2020. Specifically, businesses that experienced a decline in gross receipts by more than 20% in any quarter of 2020 compared to the same quarter in 2019 are eligible. Tax-exempt organizations that fall under 501(c) categorization qualify if they partially or fully suspended all operations in 2020 or 2021.
You can find more resources and details from the U.S. Chamber and the IRS. Speak to your tax preparer and payroll provider today to understand the options available to your business.
As the Policy and Research Project Manager, Elizabeth Walker provides leadership on initiatives and policies, project management, research analysis and administration for initiatives that advance BRAC’s annual policy agenda.