As we welcome Spring with open arms, we also approach the end of another tax season. While most of us are content with paying our fair share, we also want to minimize our tax obligation as much as possible. One potential avenue receiving a lot of attention lately is the COVID-19 era Employee Retention Tax Credit (ERTC), enacted by Congress in March 2020.
The ERTC provides a tax credit for qualifying employers who kept employees on their payrolls during the economic downturn caused by COVID-19. A qualifying business is broadly defined as any employer operating a trade, business, or tax-exempt organization.
To be eligible, employers must have been ordered to fully or partially shut down due to government order or had gross receipts decline by 50% in 2020 or 20% in 2021 in a single quarter, as compared to that same quarter in 2019. Qualifying and eligible employers can claim a refundable credit against social security tax on up to 70% of qualified wages paid out to employees. The credit is limited, however, $5,000 per employee, per quarter in 2020 and $7,000 per employee, per quarter in 2021. Additionally, wages reported as payroll costs for PPP loan forgiveness and other tax credits cannot be used for ERTC purposes.
If you feel like you may have missed out on the ERTC, fear not. The credit may be claimed up to three years after the original payroll taxes were due. To determine your eligibility, the best approach is to discuss the issue with your tax preparer. Alternatively, there are a number of online companies that market this service for a fee. If using an online service, you will always want to exercise due diligence to make sure the provider is reputable.
