The unemployment level in the US was 3.6% in January 2020. The country had seen one of the lowest unemployment levels in 50 years. However, in February 2021, there were 8.5 million fewer people employed than in February 2020. There were a lot of reasons estimated for this drop, but the reason for the drop in employment is pretty simple. The covid-19 pandemic and the businesses’ responses from the federal, local, and state governments have caused these businesses to close down or downsize.
The US Federal government passed the CARES (Coronavirus Aid, Relief and Economic Security) Act to counter this issue and minimize the damage. And this act includes the Employee Retention Tax Credit, which has several benefits to offer to your small business. So now the question arises, how to apply for an employee retention tax credit under the CARES Act? And what are the benefits it provides you?
So, if you are seeking answers to all these questions, let’s dwell on the realm of the ERTC benefits.
What Are The Employee Retention Tax Credit Benefits?
The employee retention tax credit allowed the companies to take a 70% tax credit of up to $10,000 of employees’ qualifying wage each quarter in 2021. The maximum credit for each quarter is around $7,000 for each employee. In 2020 the refundable credit was 50% of the tax credit, up to $5,000 of an employee’s wage for the year. This tax credit can save your business a significant amount of money in taxes. To know how the employee retention tax credit works, read further.
The Various Benefits Of The Employee Retention Tax Credit Are As Follows:
Lowers Social Security Tax Liability
The credit you receive for your business through the ERTC exceeds your social security tax liability if you qualify for a refund. The amount of these credits cumulatively become reconciled on the employer’s Form 941 at the end of a respective quarter. Therefore, the ERC lowers an employer’s social security tax liability.
The Credit Is Extended To 2021
The pandemic continues to affect all the business sectors in some parts of the world. Therefore the federal government has decided to expand the ERTC in 2021. And it expands into all four quarters of the year. These extensions provide significant business benefits, which also got upgraded.
For instance, in 2021, the update is why employers can now receive 70% for the first $10,000 of the qualified wage for each employee, following the 2021 expansion, which includes the employer’s portion of Medicare taxes for the third and the fourth quarters. The new addition is known as the “recovery startup business,” which further expanded the definition of an eligible employer to encompass a new category.
The Tax Credit Benefits
Many businesses can now apply for tax credit benefits. The CARES Act further specifies two qualified conditions for business companies. Firstly, a company must have suffered either a full or partial suspension due to government orders. An organization must have suffered a significant decline in gross receipts to qualify.
In 2020, a significant decline was required for the ERC qualifications to experience a decline of 50% for a quarter. However, the qualification became further flexible in the year 2021. The 2021 criteria stipulated that you must face more than a 20% decline. The employers should compare their current quarterly revenue (the respective year they are applying for) with the same quarter in 2019 to determine if they qualify.
Claim ERTC For Many Employees
Businesses of different sizes can claim the ERTC for various employees with the new updates. Employers of a small business, for instance, can claim the ERTC for all its employee’s wages. The CARES Act defines a small organization with 100 or fewer workers.
If your organization comprises more than 100 employees, you can still claim the ERTC on some of your employees. However, those employees need to fall under the ‘not working” classification. For this process, you have to go through various forms, and if you face difficulty in doing that, you should consult a professional advisor on the ERTC.
However, these retention credits are a tremendous benefit for your company, regardless of the type of business you run. For better understanding, consult a professional advisor and see the number of employees your organization affects when you take an ERTC.
Claiming The ERTC Is Easy
If your business qualifies for the ERTC, it’s easier for you to move on to further process. It would be best to claim it on your federal employment tax returns with your Form 941. It might be the case you have qualified for this refund on your Employer’s Quarterly Federal Tax Return. If not, then there is absolutely nothing to worry about. You can revise your Employer’s Quarterly Federal Tax Return on Form 941-X if you have determined that you did qualify for the ERC.
However, different types of businesses have other ways of claiming the ERTC, such as some companies can claim the credit on Form 944 on their Employer’s Annual Federal Tax Return. If you are an agricultural business owner, you can claim Form 943. Investigate the various options available there for your business type.
Claim ERTC For Many Sectors
One of the prime advantages of the employee retention tax credit is that many sectors can now claim the ERTC. To know whether who qualifies for the employee retention tax credit, the IRS has outlined the criteria for determining the qualification. The sectors can include private-sector organizations, tax-exempt entities, and nonprofit groups.
Furthermore, government entities such as universities and colleges are also eligible for the credit. In covid-19, businesses specializing in the healthcare and medical sector can also receive tax credits.
Conclusion
Overall there are several benefits of the Employee Retention Tax Credit. But first, you have to determine whether you qualify or not. To get started, consider working with us. CPA Due Diligence specializes in helping people navigate tax credit procedures and eligibility requirements. In addition, we provide you with professional advice. Apply for the ERTC now.
