FAQs Regarding the Employee Retention Credit
Businesses that kept paying their employees throughout the COVID-19 outbreak are given substantial financial incentives through the Employee Retention Tax Credit (ERTC). Although credit might put money in your pocket, it can be challenging to locate trustworthy information about it and how to apply for it. On its website, the IRS has written several articles about this credit, but many of them are out-of-date or difficult to understand. So we thought about some FAQs that may help you.
Additionally, it appears that a lot of information is obscured in pdf files or omitted from tax form instructions. This occurred as a result of the government initially creating the credit but then drafting legislation that significantly altered it. Some of the modifications even went back in time, which just added to the confusion.
Unfortunately, there are lots of questions about the ERTC for which there aren’t many resources. This ERTC FAQs guide is here to assist you. It offers thorough, current responses to the most frequently asked questions concerning the ERTC. What you should know is as follows.
FAQs Regarding ERTC Eligibility
This credit can only be claimed by specific types of enterprises. To be eligible for the ERTC, you must fulfill severe requirements. Here are some FAQs queries about the credit eligibility requirements.
Who Can Receive an ERTC Credit?
Businesses may be eligible for this credit if COVID-19 significantly reduced their revenue. They may also be eligible if they have to shut down or halt vital operations of their company.
They have to pay wages at that time, as well as having these problems between March 12, 2020, and September 30, 2021. Payroll expenses for the final quarter of 2021 can also be claimed as a tax credit by eligible recovery start-up firms.
Any Size of the Company May Be Eligible for the Credit
Your eligibility for the credit is impacted by how many employees you have. The 2020 credits are only available to companies with fewer than 100 full-time equivalents (FTE) workers in 2019. If a company had fewer than 500 full-time employees in 2019, it can apply for 2021 credits. Employers can utilize their 2020 employee numbers if they weren’t in operation in 2019.
What Happens If Your Company Has More FTE Employees Than the Threshold?
Businesses that have more employees than the minimum requirement may be eligible for the credit if they paid workers who were not performing services. This is relevant when employers send workers home while still paying them.
Is There a Minimum Requirement for Employees to Earn This Credit?
No. There is no minimum employee requirement to be eligible for this credit. If you merely have a few employees, or perhaps just one, you can still claim this credit.
FAQs: What Wages Are Eligible for ERTC?
Up to $10,000 in salary or qualified healthcare costs can be claimed as a credit for 2020. And up to $10,000 per quarter for 2021. For 2020 and 2021, the credit is 50% of the qualified wages, respectively. Accordingly, the credit may be worth as much as $5,000 per employee in 2020 and as much as $7,000 per employee per quarter in 2021.
What Happens if Your Company Is in Serious Financial Distress?
If your revenue fell to 10% of what it was for the same quarter in 2019, the IRS would consider your business to be seriously financially distressed. All wages paid in the third quarter of 2021 by severely distressed enterprises are treated as qualifying wages.
The $7,000 cap each quarter doesn’t apply to these companies. If their revenue declines by at least 90%, they may use this credit for all wages paid during the third quarter of 2021.
Can Business Owner Wages Be Used to Claim the ERTC?
If a business owner owns less than 50% of the company, you can claim the ERTC on their wages. If married couples who operate a business together want to claim this credit on their earnings, they must jointly own less than 50% of the business. The credit is limited to use on wages only. Owner draws and other payments are exempt.
Can Wages Paid to Family Members Be Reimbursed Under the ERTC?
Unless you own less than fifty percent of the company, you are not eligible to claim the ERTC on salaries paid to your young children. There can be limitations on using this credit for other family members’ salaries as well.
Can ERTC Be Reclaimed on Payments to Freelancers?
No, only wages given to employees are covered by the ERTC. If you pay someone who is not a W2 employee, such as a freelancer or an independent contractor, you must withhold Social Security and Medicare from their paychecks to qualify for this benefit.
How Much of a Drop in Revenue Is Required to Qualify for the ERTC?
If your revenue in 2020 was at least 50% lower than your revenue in the same quarter of 2019, you may be eligible for the ERTC based on reduced revenue. Until you reach a quarter where your revenue is at least 80% of your revenue for the same quarter in 2019, you can keep claiming the credit.
Your revenue merely has to decrease by 80% or less compared to the same quarter in 2019 for you to be eligible for the 2021 credit. Businesses that didn’t operate in 2019 can compare 2020 data to 2021 data.
How Does Eligibility Affect Multiple Locations?
You should treat your entire network of locations as a single company. There is no requirement that sales fall at every site. Just a general decline in revenue will do.
What If There Was Just One Location With a Qualifying Drop in Revenue?
To determine your eligibility for this credit, you must total your sales across all of your locations. You can only apply for this credit for a single location if it operates independently.
If My Revenue Increases, Are I Still Eligible for the ERTC?
To be eligible for the ERTC, you don’t need to see a decline in revenue. Additionally, you may be eligible for this credit if COVID-19 government actions caused you to close your company or cease operations. The closure could be total or partial. For you to be eligible for the ERTC, it must have affected 10% of your business operations or 10% of your workforce.
FAQs: Can New Companies Apply for Credit?
The eligibility requirements for this loan are slightly different for new firms. Businesses that began operations after February 15, 2020, and have annual gross sales of less than $1 million are eligible to apply for this credit for the final two quarters of 2021. Regardless of whether their revenue decreased. Even if they didn’t have to stop operating or close down, these companies are still eligible.
If a business did not claim these credits in 2020 or 2021, they still have time to do so. Businesses could claim these credits while filing their employment tax returns. Businesses that qualify may submit a retroactive ERTC claim. Questions regarding the application procedure are answered in the section that follows.
Get the Help You Require Right Away
We can assist you in determining your eligibility and in gathering the materials required for your application for this credit.
Don’t let this chance slip through your fingers. This is a risk-free, legal way to get your money back and temporarily alleviate the financial hardship caused by the COVID-19 pandemic. To learn more about FAQs mentioned, as well as your choices for Employee Retention Credit, contact us now!