Federal Employment Retention Credit: What It Means and How to Take Advantage

The COVID-19 pandemic and the resulting lockdowns presented unforeseen and unprecedented challenges to businesses across the United States and the world. As a result, many governments and government agencies created temporary programs to offset some of those challenges, help as many people remain employed as possible, and assist businesses in weathering the storm.

In the U.S., one such program was the Employee Retention Tax Credit (ERTC). ERTC has now officially ended. However, many businesses still have time to conduct a “lookback” and, where applicable, claim the credit on wages paid from March 13, 2020, until Sept. 30, 2021.

In today’s post, we will break down exactly what the ERTC is, what it means for your business, and how you can take advantage of it before the deadline.

What Is the Federal Employment Retention Tax Credit?

The Federal Employee Retention Tax Credit (Federal ERTC) is a refundable credit that businesses can claim on certain monies paid to employees, including wages and health insurance costs in some circumstances, during the COVID-19 pandemic. The ERTC was part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.2 trillion economic stimulus bill signed into law by then-President Trump on March 27, 2020.

The credit was available to employers whose operations were suspended entirely or whose revenue decreased significantly (generally defined as a downturn of more than 50% against a comparable quarter in 2019 for quarters in 2020 or 80% for quarters in 2021) due to the pandemic.

President Biden signed the Infrastructure Investment and Jobs Act (IIJA) into law on Nov. 15, 2021. This legislation retroactively disallowed most employers from claiming ERTC on wages paid after Sept. 30, 2021, one quarter earlier than was initially anticipated. However, businesses can still claim retroactively for eligible payments during the period of March 13, 2020-Sept. 30, 2021. Businesses have until April 15, 2024, to file amended returns for Qs 2-4 of 2020 and until April 15, 2025, to file for all eligible quarters in 2021.

What Types of Businesses Qualify for the ERTC?

The ERTC was made available (and remains retroactively available) to employers of all types and sizes, including tax-exempt organizations, state and local government organizations, and their instrumentalities that meet the specific requirements.

Eligibility for ERTC must be determined quaterly. To qualify for an ERTC, an employer must meet one of two alternative tests for each relevant quarter. The employer must either show that its business operations were fully or significantly suspended due to the COVID-19 pandemic during that time, or that the organization’s gross receipts were below 50% of the value of the same quarter in 2019 (to qualify in 2020) or below 80% of the same quarter in 2019 (to qualify in 2021).

For quarters ending in 2020, an organization ceased to be eligible for ERTC at the end of the quarter in which its gross receipts equaled at least 80% of the same quarter in 2019. Eligibility in 2021 did not cease at a certain level but was determined quarterly based on the 80% threshold.

How Is ERTC Calculated and How Much Can Be Claimed? 

Eligible employers can claim against monies paid to employees at a rate of 50% (up to a maximum of $5,000 per eligible employee for the year) for qualifying wages paid between March 13, 2020, and the end of that year, and 70% (up to a maximum of $7,000 per eligible employee per quarter) for wages paid from the start of 2021 to Sept. 30 that year. The definition of “qualifying wages” depends on how many employees the organization had in 2019. For those with under 100 employees, the credit applies to wages paid to all employees whether or not those individuals actually worked during the relevant quarter. This means the employer would receive the credit even if an employee worked and was paid for full-time hours during that time.

For organizations with over 100 employees in 2019, the credit is applicable only for wages paid to employees who did not work during the relevant calendar quarter.

In all cases, “qualifying wages” include a portion of the cost of employer-provided health insurance and cash wages.

How to Claim ERTC Retroactively 

If you believe your business is eligible for the ERTC and you have not yet claimed it, there is still time to do so retroactively. You will need to do this by filing amended payroll tax returns for the relevant calendar quarters in 2020 and 2021.

This will involve completing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for each relevant quarter.

Learn More and Get Support

The best way to ensure you are claiming correctly and taking advantage of all available tax credits is to seek support from a certified accountant, as the laws can be complicated. Here at Levine Jacobs & Co., we have been supporting New Jersey’s business owners with their accounting needs since the 1950s. We are incredibly proud of our philosophy of personalized attention and customized advice.

Please contact us if you would like to learn more about the ERTC, what it means for your business, and how you can claim against eligible wages before the deadline. A member of our supportive, knowledgeable team will be happy to assist you.

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