Employee Retention Tax Credit was a scheme implemented in March 2020 to help out businesses that had struggled with closures or restrictions due to the pandemic.
Many small to medium businesses were left struggling with the dilemma. They either let go some of their trusted employees due to lack of profits, meaning they’d have to recruit and retrain new people when the world opened back up again, or they could continue to pay their employees to help pay their bills in the hope that they could make the money back later.
ERC was implemented through the IRS to reward those businesses who chose to help maintain the economy and keep on their staff during this difficult period.
In 2020, businesses were entitled to 50% of each employee’s wages per quarter up to a possible $10,000.
However, due to the ongoing restrictions, this amount was increased in quarters 1-3 of 2021, where employers could claim back a potential 70% of their employee’s wages per quarter up to $10,000.
This is a potential $26,000 per employee if they were employed throughout the whole period. The average amount paid back per employee so far is $11,000.
To be eligible for ERTC, there are some criteria that each business needs to meet.
The ERC payment will arrive via check or as a lump sum straight to your bank account. You should be aware that you can only claim ERC for full-time employees and the amount would not include anything spent on expenses or healthcare during this time.
If you operate a business that normally includes tips – a bar or restaurant, for example, the $20 per month would be included per employee as qualified wages.
You can still qualify for ERC, even if you had previously applied for PPP for an employee. This scheme was adopted in 2021, so you may be able to claim on both schemes for individual employees throughout this year. However, in 2020, this scheme required you to apply for one or the other.
If you previously applied and received PPP for your employees in 2020, you may not be able to receive the ERC payment for this year as well.
Although the scheme ended in 2021, businesses still have until April 2024 to amend their tax filing statements. Many businesses were unaware of the potential of ERTC or didn’t know how to apply it. Filing an amendment via Form 914-X can help you to pull some of that cash back.
The process of claiming can be daunting and time consuming for businesses. You will be able to find specialist companies such as ERC Benefits that help businesses with their application so that they can achieve a maximum tax credit and where they take on all of the intensive work. These services are highly recommended for businesses to use.
If you’re not confident about filing your tax amendment, or you’re a little confused about how to claim for ERC, then it’s important to contact your accountant, tax professional, or payroll company, as they will be able to provide more advice and support to make sure you get the full amount due to you.
