employee retention tax credit refund status

The Comprehensive Guide to Claiming Employee Retention Tax Credit for Your Business

Apr 25, 2023 Fred Holdmann

Table of Contents

Introduction

The Comprehensive Guide to Claiming Employee Retention Tax Credit for Your Business is a resource that provides detailed information on how businesses can claim the Employee Retention Tax Credit (ERTC). This guide covers eligibility requirements, calculation methods, and other important considerations for businesses looking to take advantage of this tax credit. By following the steps outlined in this guide, businesses can potentially save thousands of dollars on their tax bill while retaining their valuable employees.

Overview of Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a tax credit that was introduced by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The ERTC is designed to help businesses that have been impacted by the COVID-19 pandemic to retain their employees. The credit is available to eligible employers who have experienced a significant decline in gross receipts or have been fully or partially suspended due to

government orders related to COVID-19.

The ERTC is a refundable tax credit that is equal to 50% of qualified wages paid to employees between March 13, 2020, and December 31, 2021. The maximum credit amount per employee is $5,000 for the entire period. Qualified wages include wages and health plan expenses paid to employees who are not working due to a full or partial suspension of operations or a significant decline in gross receipts.

To be eligible for the ERTC, an employer must meet certain criteria. First, the employer must have been in operation during 2020 or 2021. Second, the employer must have experienced a significant decline in gross receipts. A significant decline in gross receipts is defined as a decline of 50% or more in gross receipts for a calendar quarter compared to the same quarter in the previous year. Alternatively, an employer can qualify if they were fully or partially suspended due to a government order related to COVID-19.

The ERTC is available to businesses of all sizes, including tax-exempt organizations. However, there are some limitations on the credit for larger employers. For employers with more than 500 employees, the credit is only available for wages paid to employees who are

not working due to a full or partial suspension of operations or a significant decline in gross receipts. For employers with 500 or fewer employees, the credit is available for all qualified wages paid during the eligible period.

To claim the ERTC, eligible employers must file Form 941, Employer’s Quarterly Federal Tax Return, for the applicable quarter. The credit is claimed on Line 11c of Form 941. Employers can also request an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

It is important to note that employers cannot claim the ERTC for the same wages that were used to calculate the Paycheck Protection Program (PPP) loan forgiveness. However, employers can claim the ERTC for wages that were not paid for with PPP loan proceeds.

In conclusion, the Employee Retention Tax Credit is a valuable tool for businesses that have been impacted by the COVID-19 pandemic. The credit can help businesses retain their employees and stay afloat during these challenging times. To claim the credit, eligible employers must meet certain criteria and file the appropriate forms with the IRS. It is important for businesses to consult with a tax professional to ensure that they are

eligible for the credit and are claiming it correctly.

Eligibility Requirements for Claiming the Credit

To claim the ERTC, businesses must meet certain eligibility requirements. The first requirement is that the business must have been in operation during the calendar year 2020 or 2021. The second requirement is that the business must have experienced a significant decline in gross receipts. A significant decline in gross receipts is defined as a decline of 20% or more in gross receipts for a calendar quarter in 2020 or 2021 compared to the same quarter in 2019. Alternatively, a business can qualify for the credit if it was fully or partially suspended due to a government order during the calendar quarter.

The third requirement is that the business must have fewer than 500 employees.

This includes full-time, part-time, and seasonal employees. The employee count is determined based on the average number of employees the business had during 2019. If the business did not exist in 2019, the employee count is based on the average number of employees the business had during the first quarter of 2020.

The fourth requirement is that the business must have paid qualified wages to its employees. Qualified wages are wages paid to employees during the period of time that the business was experiencing a significant decline in gross receipts or was fully or partially suspended due to a government order. The amount of qualified wages that can be claimed for the credit is limited to $10,000 per employee per calendar quarter. This means that the maximum credit that can be claimed for each employee is $7,000 for each quarter in 2021.

The fifth requirement is that the business must not have received a Paycheck Protection Program (PPP) loan that has been forgiven. If a business has received a PPP loan that has been forgiven, it is not eligible to claim the ERTC for the same wages that were used to calculate the PPP loan forgiveness.

In addition to these eligibility requirements, there

are also certain limitations on the ERTC that businesses should be aware of. The first limitation is that the credit cannot be claimed for the same wages that are used to claim other tax credits, such as the Work Opportunity Tax Credit or the Research and Development Tax Credit. The second limitation is that the credit cannot be claimed for wages that are paid to family members of the business owner.

In conclusion, the ERTC is a valuable tax credit that can help businesses that have been impacted by the COVID-19 pandemic to retain their employees. To claim the credit, businesses must meet certain eligibility requirements, including having experienced a significant decline in gross receipts or being fully or partially suspended due to a government order, having fewer than 500 employees, and having paid qualified wages to their employees. Businesses should also be aware of the limitations on the credit, including the fact that it cannot be claimed for the same wages that are used to claim other tax credits and cannot be claimed for wages paid to family members of the business owner. By understanding these eligibility requirements and limitations, businesses can take advantage of the ERTC and receive the

financial support they need to retain their employees during these challenging times.

Calculation of the Credit Amount

The Employee Retention Tax Credit (ERTC) is a valuable tax credit that businesses can claim to help offset the costs of retaining employees during the COVID-19 pandemic. The credit is available to eligible employers who have experienced a significant decline in gross receipts or have been fully or partially suspended due to government orders related to COVID-19. In this comprehensive guide, we will discuss the calculation of the credit amount and provide examples to help you understand how to claim the ERTC for your business.

To calculate the ERTC, eligible employers can claim a credit equal to 50% of qualified wages paid to employees between March 13, 2020, and December 31, 2021. The maximum credit amount per employee is $5,000 for the entire period. Qualified wages include wages and compensation paid to employees, including health benefits, but exclude sick leave and family leave wages paid under the Families First Coronavirus Response Act (FFCRA).

The calculation of the credit amount depends on the number of employees and the amount of qualified wages paid during the eligible period. For employers with 500 or fewer employees, qualified wages include

all wages paid during the eligible period, regardless of whether the employee was providing services or not. For employers with more than 500 employees, qualified wages are limited to wages paid to employees who were not providing services due to the COVID-19 pandemic.

To calculate the credit amount, eligible employers must first determine their qualified wages for each employee during the eligible period. This can be done by reviewing payroll records and identifying the wages paid to each employee during the eligible period. Once the qualified wages have been determined, eligible employers can claim a credit equal to 50% of the qualified wages paid to each employee, up to a maximum of $5,000 per employee.

For example, if an eligible employer paid $10,000 in qualified wages to an employee during the eligible period, they can claim a credit of $5,000 for that employee. If the employer paid $8,000 in qualified wages to another employee during the eligible period, they can claim a credit of $4,000 for that employee. The total credit amount for both employees would be $9,000 ($5,000 + $4,000).

It is important to note that the ERTC is a refundable tax credit, which means that eligible employers can receive the credit

even if they do not owe any taxes. If the credit amount exceeds the employer’s tax liability, the excess credit can be refunded to the employer.

In addition to the calculation of the credit amount, eligible employers must also meet certain eligibility requirements to claim the ERTC. These requirements include a significant decline in gross receipts or a full or partial suspension of operations due to government orders related to COVID-19. Eligible employers must also maintain documentation to support their claim for the credit, including payroll records and documentation of the decline in gross receipts or suspension of operations.

In conclusion, the ERTC is a valuable tax credit that can help eligible employers offset the costs of retaining employees during the COVID-19 pandemic. To claim the credit, eligible employers must calculate the credit amount based on the qualified wages paid to employees during the eligible period. The credit amount is equal to 50% of qualified wages, up to a maximum of $5,000 per employee. Eligible employers must also meet certain eligibility requirements and maintain documentation to support their claim for the credit. By understanding the calculation of the credit amount and meeting the eligibility requirements, eligible employers can take advantage of this

valuable tax credit to help support their business during these challenging times.

How to Claim the Credit on Your Business Tax Return

To claim the ERTC, eligible employers must file Form 941, Employer’s Quarterly Federal Tax Return, with the Internal Revenue Service (IRS). The credit is claimed on Line 11c of Form 941 for the applicable quarter. The credit is refundable, which means that if the amount of the credit exceeds the employer’s payroll tax liability, the excess credit will be refunded to the employer.

To calculate the amount of the credit, eligible employers must determine the qualified wages paid to each employee during the applicable quarter. Qualified wages are wages paid to an employee during the period of time that the employer is eligible for the credit. The

amount of qualified wages that can be used to calculate the credit is limited to $10,000 per employee per quarter.

The credit is equal to 50% of the qualified wages paid to each employee during the applicable quarter. For example, if an eligible employer paid $20,000 in qualified wages to an employee during the second quarter of 2021, the credit would be $10,000 (50% of $20,000).

It is important to note that the ERTC cannot be claimed for the same wages that were used to calculate the Paycheck Protection Program (PPP) loan forgiveness. This means that if an employer received a PPP loan and used the funds to pay employee wages, those wages cannot be used to calculate the ERTC.

In addition to the ERTC, eligible employers may also be able to claim the Paid Sick Leave Credit and the Family Leave Credit. These credits are available to employers who provided paid sick leave or paid family leave to employees for reasons related to COVID-19. The credits are claimed on Form 941, Line 13b and Line 13c, respectively.

To claim the Paid Sick Leave Credit and the Family Leave Credit, eligible employers must determine the amount of qualified sick leave wages and qualified family

leave wages paid to each employee during the applicable quarter. The amount of qualified sick leave wages and qualified family leave wages that can be used to calculate the credits is limited to the maximum amount of wages that can be paid under the Families First Coronavirus Response Act (FFCRA).

The Paid Sick Leave Credit is equal to 100% of the qualified sick leave wages paid to each employee, up to a maximum of $511 per day for a total of 10 days. The Family Leave Credit is equal to 100% of the qualified family leave wages paid to each employee, up to a maximum of $200 per day for a total of 10 weeks.

In conclusion, the ERTC, Paid Sick Leave Credit, and Family Leave Credit are valuable tax credits that can help eligible employers offset the costs of retaining employees during the COVID-19 pandemic. To claim these credits, eligible employers must file Form 941 with the IRS and calculate the amount of qualified wages and qualified leave wages paid to each employee during the applicable quarter. It is important to note that these credits cannot be claimed for the same wages that were used to calculate PPP loan forgiveness. Employers

should consult with a tax professional to ensure that they are claiming all available credits and maximizing their tax savings.

Impact of Other COVID-19 Relief Programs on the Credit

The COVID-19 pandemic has had a significant impact on businesses across the United States. To help alleviate some of the financial burden, the government has implemented various relief programs, including the Employee Retention Tax Credit (ERTC). This credit is designed to encourage businesses to keep their employees on payroll during the pandemic. However, it is important to understand how other relief programs may impact your eligibility for the ERTC.

One of the most significant relief programs is the Paycheck Protection Program (PPP). This program provides forgivable loans to small businesses to cover payroll and other expenses. If your business received a PPP loan, you may still be eligible for the ERTC, but there are some restrictions. Specifically, you cannot claim the ERTC for wages that were paid with PPP funds. However, you can claim the credit for wages that were not covered by the PPP loan.

Another program that may impact your eligibility for the ERTC is the Families First Coronavirus Response Act (FFCRA). This act requires certain employers to provide paid sick leave

and expanded family and medical leave to employees affected by COVID-19. If your business is required to provide this leave, you may still be eligible for the ERTC, but there are some limitations. Specifically, you cannot claim the credit for wages that were used to pay for FFCRA leave.

It is also important to note that if you received a tax credit for providing FFCRA leave, you cannot claim the ERTC for the same wages. However, you can claim the ERTC for wages that were not used to pay for FFCRA leave.

Additionally, if your business received a Work Opportunity Tax Credit (WOTC) for hiring employees from certain targeted groups, you may still be eligible for the ERTC. However, you cannot claim the ERTC for wages that were used to calculate the WOTC.

It is important to carefully review the eligibility requirements for each relief program to determine how they may impact your ability to claim the ERTC. If you are unsure about your eligibility, it may be helpful to consult with a tax professional.

In conclusion, while the ERTC is a valuable relief program for businesses during the COVID-19 pandemic, it is important to understand how other relief programs may impact your eligibility.

Specifically, if your business received a PPP loan or is required to provide FFCRA leave, there are limitations on the wages that can be claimed for the ERTC. Additionally, if your business received a WOTC, there are restrictions on the wages that can be claimed for the ERTC. By carefully reviewing the eligibility requirements for each program, you can ensure that you are maximizing your relief options during these challenging times.

Common Mistakes to Avoid When Claiming the Credit

The Employee Retention Tax Credit (ERTC) is a valuable tax credit that businesses can claim to help offset the costs of retaining employees during the COVID-19 pandemic. However, claiming the credit can be a complex process, and there are several common mistakes that businesses should avoid to ensure that they receive the full benefit of the credit.

One of the most common mistakes that businesses make when claiming the ERTC is failing to properly document their eligibility for the credit. To claim the credit, businesses must be able to demonstrate that they experienced a significant decline in gross receipts or were subject to a government-mandated shutdown due to the pandemic. This documentation should include financial statements, tax returns, and other relevant records that

support the business’s eligibility for the credit.

Another common mistake is failing to properly calculate the amount of the credit. The ERTC is calculated as a percentage of qualified wages paid to eligible employees, up to a maximum of $7,000 per employee per quarter. Businesses must carefully track and document the wages paid to eligible employees to ensure that they are claiming the correct amount of the credit.

Businesses should also be aware of the interaction between the ERTC and other COVID-19 relief programs, such as the Paycheck Protection Program (PPP). Businesses that received PPP loans may still be eligible for the ERTC, but the wages used to calculate the ERTC cannot be the same wages used to calculate PPP loan forgiveness. Businesses should carefully review the rules and regulations governing these programs to ensure that they are maximizing their benefits.

Another common mistake is failing to properly claim the credit on their tax returns. Businesses must use Form 941, the Employer’s Quarterly Federal Tax Return, to claim the ERTC. This form must be filed with the IRS on a quarterly basis, and businesses must carefully follow the instructions and guidelines provided by the IRS to ensure that they are claiming the credit

correctly.

Finally, businesses should be aware of the potential for audit and review by the IRS. The ERTC is a valuable tax credit, and the IRS is likely to closely scrutinize claims for the credit to ensure that businesses are eligible and are claiming the correct amount. Businesses should be prepared to provide documentation and support for their claims, and should work with their tax advisors to ensure that they are in compliance with all applicable rules and regulations.

In conclusion, claiming the Employee Retention Tax Credit can be a valuable way for businesses to offset the costs of retaining employees during the COVID-19 pandemic. However, businesses must be careful to avoid common mistakes when claiming the credit, including failing to properly document eligibility, failing to properly calculate the credit, failing to properly claim the credit on their tax returns, and failing to be aware of the potential for audit and review by the IRS. By working with their tax advisors and carefully following the rules and regulations governing the credit, businesses can maximize their benefits and ensure that they are in compliance with all applicable laws and regulations.

Conclusion

The Comprehensive Guide to Claiming Employee Retention Tax Credit for Your Business provides

valuable information on how businesses can claim the Employee Retention Tax Credit (ERTC) to help offset the financial impact of the COVID-19 pandemic. The guide covers eligibility requirements, calculation methods, and filing procedures for the ERTC. Overall, this guide is a useful resource for businesses looking to take advantage of this tax credit.