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The Employee Retention Tax Credit (ERTC): What Employers Should Know

by David Polaski on May 10, 2022 9:09:26 AM

Under the Infrastructure Investment and Jobs Act 2021, the Employee Retention Tax Credit (ERTC) program end date was September 30, 2021, although recovery startup businesses remained eligible to pay qualified wages through December 31, 2021, thanks to the American Rescue Plan Act of 2021. But the benefits of the ERTC program didn’t stop then. Employers can still take advantage of the program retroactively. In fact, employers have up to three years from September 30, 2021, to determine if they have qualified employee wages paid to employees after March 12, 2020.

Claim Your ERTC!

Complete Payroll Solutions has been providing guidance to our more than 10,000 clients on how to benefit from available relief programs to help them continue to make payroll. Since this latest development may make it challenging to know how to take advantage of ERTC and the recovery startup credit, here we’ll cover:

  • What is the ERTC?
  • How is the ERTC calculated?
  • Who is eligible for ERTC?
  • How do I claim ERTC?
  • How can businesses claim ERTC retroactively?
  • How do I process the ERTC with Complete Payroll Solutions?

After reading this article, you’ll understand whether your business can qualify for the ERTC and next steps for securing the much-needed relief.

What is ERTC?

The Employee Retention Tax Credit, or ERTC, is a fully refundable payroll tax credit. It’s available to companies that have partially or fully suspended their operations due to COVID-19 or had a significant decline in gross receipts compared to 2019.

Designed to encourage businesses to keep employees during the pandemic, the credit allows employers to offset federal payroll taxes such as federal wage withholding and the employee’s share of Social Security and Medicare taxes. Employers who have received Paycheck Protection Program (PPP) loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.

Claim Your ERTC!

How is the Employee Retention Tax Credit calculated?

Three pieces of legislation were created for the ERTC, and each one calculates the credit differently:

  1. CARES ACT 2020: For employers who qualify, including borrowers who took a loan under the initial PPP, the credit can be claimed against 50 percent of qualified wages paid, up to $10,000 per employee annually for wages paid between March 13 and December 31, 2020.
  2. Consolidated Appropriations Act of 2021: Qualifying employers, including employers that received PPP funds, can claim a credit against 70% of wages paid. The amount of qualified wages for the credit was increased to $10,000 per employee per quarter for the first two quarters of 2021.
  3. American Rescue Plan Act of 2021: The maximum credit is unchanged at up to 70% of qualified wages up to $10,000 per quarter. Employers can claim $7,000 per quarter per employee up to September 30,2021. The Recovery Startup Business provision of this legislation extended eligibility for ERTC through December 31, 2021. A startup business may be eligible to take a credit of up to $50,000 for the third and fourth quarters of 2021.

Who qualifies for this credit?

Before you can take the ERTC, you need to determine your eligibility. Since not all businesses are eligible, it’s important to understand the conditions.

Originally, you could only claim the credit if you were either fully or partially suspended by a lockdown order or your gross receipts in any quarter in 2020 were less than 50% of gross receipts for the same quarter in 2019. This provision prevented most businesses from qualifying for the ERTC, causing only a small fraction of companies to take advantage of the credit.

However, under the American Rescue Plan Act of 2021, it’s easier to be eligible since you now only need to show a decline in gross receipts of more than 20% for the same quarter in 2019. There are even certain rules that can allow you to take the credit if you weren’t in existence for all or part of 2019 and are a recovery startup business. The recovery startup business provision applies to companies that:

  • opened a trade business after Feb 15, 2020 and
  • have average annual gross receipts that do not exceed $1 million

Startup companies that meet these criteria are eligible to claim the ERTC even if they don’t meet the significant decline in gross receipts or suspension of operations test. The amount of ERTC available per employer under this provision is capped at $50,000.

Claim Your ERTC!

How do I claim the credit retroactively?

Eligible businesses can file a claim for a retroactive ERTC refund on previously paid qualified wages for past calendar quarters. To do this, you’ll need to prepare and file Form 941X, Adjusted Employer’s Quarterly Federal Tax Return.

It’s important to note that for retroactive claims for ERTC refunds, you may face significant delays in receiving funds from the IRS due to their current backlog in processing 941X returns.

How do I process the ERTC with Complete Payroll Solutions?

If you use Complete Payroll Solutions as your outsourced payroll provider, we can help guide you through the process of claiming the ERTC retroactively. In order for us to do that, we’ll need:

  • A waiver saying your company is eligible
  • The effective date for which you’re claiming the credit (for retroactive credits, the effective start date must be after March 12, 2020)
  • The period start and end dates of your PPP loan
  • The amount of PPP funds received

When we have this information, we’ll process your current quarter payroll coding as well as amend any previous Form 941s. Once these amendments are accepted and processed by the IRS, you’ll get a refund.

Maximize Your Relief with Retroactive ERTC Claims

For financially distressed businesses, the extended ERTC is a welcome relief. Even though many companies weren’t initially able to claim the ERTC because they applied for PPP loans, you can now get the ERTC even with a forgiven PPP loan. Be sure to follow IRS guidance that recommends nonprofits and other employers maximize the amount of qualified non-payroll expenses (up to the 40 percent statutory limit) when applying for PPP loan forgiveness to ensure that excess payroll expenses can produce the greatest amount of the ERTC. 

If you want to best position your company for the future by outsourcing your payroll and Complete Payroll Solutions’ seems like a good fit, find out more about our services on our dedicated payroll page.

Claim Your ERTC!

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