Employee Retention Tax Credit (ERTC)

 Employee Retention Tax Credit (ERTC)


What is Employee Retention Tax Credit

Employee Retention Credit is a fully refundable tax credit provided under CARES Act to encourage businesses to keep employees on their payroll. Most of the small and medium business entities are eligible to this credit if they have employees on payroll and they were impacted by pandemic. The impact may be partial or full shut down of the business or substantial decrease on their revenue.

For 2020

The credit is equal to 50% of wages of the employee. The maximum amount of qualifying wages per employee is $10,000. In simple words, an employer can get refund up to $5,000 per employee or 50% of the wages paid whichever is lower.

The business should have been shutdown or partially shut down or there is reduction of revenue by 50% during the same quarter compared to 2019 quarters.

For 2021

The credit for 2021 is 70% of wages per employee per quarter till September 30, 2021 (before October 1, 2021). The maximum eligible wages per quarter is 70% of quarterly wages of a employee or $7,000 per employee whichever is lower.

The business revenue is decreased by more than 20% compared to the same quarter in 2019.

Total Amount of ERTC 

Total amount of credit for both the year can be $26,000 per employee. Business that was not existed in 2019 may use a comparison to 2020 for the purpose of credit.

Health insurance cost can also be added to arrive at employee wages for the quarter.

How to claim the ERC credit?

Amend form 941 by filing form 941X for all the quarters that you are eligible to claim the credit. It is fully refundable credit. IRS will issue you a refund check after they process 941X.

Step to follow:

  • Find out if the business is eligible to claim the credit – Business Suspended or 50% reduction in    revenue for the quarter compared to same quarter in 2019 for 2020 and more than 20% reduction  in 2021.
  • Compute the credit – 50% of wages for 2020, maximum of $5,000 and 70% of wages or maximum of $7,000 per employee
  • Compile all the required documents – Quarterly payroll summary by employee, income statement, evidence to support shutdown, etc.
  • Fill out form 941X
  • Send it to IRS with copy of 941 originally filed.

Refund might take a while to arrive. It might take about 6-9 months. In case of audit it might take longer. All the supporting documents will come 

Comments

Post a Comment

Popular posts from this blog

Hype of Cost Segregation – Does it worth?

  Cost Segregation There is a big hype in the tax market that everyone can save bunch of taxes by doing cost segregation. Is it correct or they are selling their stuff? Fist let’s understand what cost segregation is and what it does for you. What is cost segregation Cost segregation is separating value or cost of a real estate property from the actual structure of the building. It is a process that separates add-ons that are installed on top of the building. In other words, those other assets which can be separated from the building, the can be separately replaced and can be easily differentiated from the property. Examples are cabinets, kitchen tops, floorings, fence, landscaping, sometimes windows, doors, electricity, appliances, and some fixtures and so on. By separating these values, you can take bigger depreciation or faster write offs on those non-real estate assets with in 5, 7 and 15 years. On the other hand Real Estates are depreciated at slower pace for tax purpose....
Read more

Tax on Installment Sale

  How is Tax Calculated on Installment Sale An installment sale is a sale of property where you receive at least one payment after the tax year in which the sale occurs. When you receive payment in installment for sale of asset, you're required to report gain on an installment sale under the installment method unless you elect out from it on filing the return or before the due date for filing your tax return (including extensions) for the year of the sale. You can recognize full gain in the year of sale even if it is an installment sale on Form 4797, Sales of Business Property, or on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets. It is worthwhile to remember that installment sale method is not available for property sold on loss. Likewise, you cannot use the installment method to report gain from the sale of inventory or stocks and securities traded on an established securities market . Even it is installment sa...
Read more

Marketing for Small Business

 Marketing Mantra Marketing is generally views as the activities a business conduct to promote the buying or selling of its product or services. In other words it is a process by which business sends out the message to the customers or prospective customers about the availability, price, and usage of the product for their information so that customer can be aware of the availability of the product in the market, its usability and the target customer can make buying or selling decision. On high level, I look at marketing as two faced phenomenon, short term marketing and brand creation. Short term marketing can be done via fancy ads and paid promotions that will create you market for a short run that can make you money and bring you clients. And brand creation gives your sustainability and growth. Both have equal values. Let’s think about short term marketing strategies, will short term marketing sustain your business? Will it bring your business the clients you expected? Will it sat...
Read more