The CARES Act (passed March 27, 2020) included a novel tax credit allowing eligible employers to claim a tax credit equal to 50% of qualifying wages, up to $10,000 of compensation, for a max credit of $5,000 per employee for wages paid between March 13, 2020, to December 31, 2020. At the time, employers were only eligible to take a PPP loan or utilize the Employee Retention Tax Credit (ERTC), not both. However, the most recent stimulus act reversed this course and now any eligible employer can take advantage of this tax credit, retroactively to the above-referenced March 13th date.
The new law also extends the credit through September 30th, 2021, and increases the credit from 50% to 70% of eligible wages in 2021. Lastly, the new law added group health care costs to qualified wages even if no other wages are paid to an employee, which helps bring furloughed employees into the calculation of the ERTC, retroactively to March 13, 2020.
Who Qualifies for the ERTC?
By 2020, employers had to either have a government-mandated
shutdown or have a reduction in gross receipts of 50% in any calendar quarter in
2020 as compared to the calendar quarter in 2019. For 2021, this bar is lowered to
only a 20% drop in gross receipts as compared to the same quarter in 2019.
Employers remain eligible until that 20% threshold has been exceeded. There is a caveat – any wages paid to employees with PPP loan proceeds do not qualify for this credit.
How do I take advantage of the Employee Retention Tax Credit?
You file for the credit on your quarterly payroll tax filings, Form 941. If you qualify for the credit for 2020 and have not yet taken advantage of it, you can file an amended quarterly payroll tax report utilizing Form 941-X. Employers claim the credit by reducing their employment tax deposits by the amount of the anticipated credit. If you expect the credit to be greater than the employment tax amount, you can file Form 7200 to receive an
the advance of that credit.
Payroll Protection Plan application is still available
Additionally, the PPP Application window has been opened for those
businesses that did not receive a PPP Loan in the first round of the
As always, we have taken the time to research and understand these benefits to
your business, so you do not have to. Contact us and one of the CPA Nerds can help answer any questions regarding these relief programs!