The ERC Tax Credit – Get Up to $26,000 Per Employee

The Employee Retention Tax Credit (ERTC) has been a valuable program for employers to get through the economic impacts of the COVID-19 pandemic. This refundable tax credit could provide up to $26,000 per employee in potential savings for eligible companies. Here’s what employers need to know about maximizing the opportunities of this credit.

Overview of the ERTC

The ERTC was originally introduced in March 2020 as part of the CARES Act. It has since been extended and expanded by follow-up relief legislation. In its current form, the key provisions of the credit include:

  • A maximum credit of $7,000 per employee per quarter
  • Eligibility for both 2020 and 2021 calendar quarters
  • Applies to qualified wages, including certain health plan expenses
  • Refundable for many employers if it exceeds payroll tax liabilities

This means that an eligible employer who retained employees throughout the pandemic could potentially get up to $26,000 per employee (7 quarters at $7,000 per quarter minus 2 quarters with lower limits in 2020).

Who Qualifies for the Credit?

The credit has broad eligibility, but some key parameters must be met:

  • Employers of all sizes are eligible in 2021, while midsize and large employers were not eligible in 2020
  • Employees must have been retained but unable to fully work due to COVID-19 disruptions
  • Gross receipts must have declined by at least 20% compared to the same quarter in 2019

There are some exceptions, but these rules encompass many employers impacted by the pandemic. Having detailed records to prove eligibility is critical to withstand potential audits.

How to Claim the Maximum $26,000 Credit

Claiming the full $26,000 per employee is dependent on a few key strategies:

  • Qualifying under the required revenue decline tests for as many quarters as possible between 2020 and 2021
  • Structuring employee wages and hours to optimize qualified wages per quarter
  • Properly including health plan expenses in the credit calculation
  • Filing timely to claim credits on prior quarters before expiration

Maintaining detailed schedules of qualified wages per employee per quarter is vital to maximize and support these substantial credits.

Getting Immediate Cash Flow Relief

One of the biggest benefits of the ERTC is that it is refundable – employers don’t have to wait until they file their tax return to realize the benefits. Once eligible wages are paid, employers can reduce upcoming payroll tax deposits to immediately access the credit cash flow.

For some employers, this temporary cash flow injection has been vital to surviving the pandemic. However, it does require proactive management of payroll tax filings and deposits to take advantage of the immediate refundability.

Common Mistakes to Avoid

While the ERTC presents a significant opportunity, employers should be aware of some common mistakes others have made so they can avoid leaving potential credits on the table:

  • Not maintaining detailed support for eligibility and qualified wages. Meticulous schedules are vital to withstand IRS scrutiny.
  • Missing qualified quarters due to nuances of revenue calculation methods. The decline in gross receipts tests can be tricky, so consult a professional.
  • Not claiming credits in earlier quarters before amended return deadlines expire. Each quarter has limits on when unclaimed credits can be filed.
  • Forgetting to include health plan expenses in the credit calculation. This can significantly increase the credit amounts.
  • Claiming the credit in 2020 when not eligible as a large employer. Amendment to recover these amounts may not be allowed.
  • Confusing wage limits between 2020 and 2021 rules. The per-employee limits differ between these years.

With some awareness and planning, these common mistakes can be avoided to ensure the full legitimate credits are realized.

Leveraging Professional Guidance

The rules around ERTC eligibility and calculations can be complex. Engaging a professional advisor is highly recommended to navigate the details and maximize your available credits.

Some of the key benefits a tax specialist can provide include:

  • In-depth analysis of revenue declines and eligibility
  • Strategic planning for wage levels and health plan costs
  • Preparation of detailed schedules to support credits claimed
  • Guidance on proper filing procedures to expedite refunds
  • Reviews of reported credits to identify any missed opportunities

Don’t leave potential credits unclaimed. Get expert help to unleash the full savings potential of the ERTC.

Conclusion

The ERTC provides substantial credits for retained employees during COVID-19 disruptions. With proper planning and execution, the opportunity is there for eligible employers to utilize these funds to weather the storm. Consult with your tax advisor to ensure you are maximizing the credits available to you. Every dollar counts during these challenging times.

Frequently Asked Questions

Who is eligible for the ERTC?

Employers of all sizes are eligible in 2021. In 2020, large employers with over 100 full-time employees were not eligible. There are also gross receipts decline tests to meet.

What costs qualify for the credit?

Qualified wages, including certain health plan expenses, are eligible costs. Wages are subject to per-employee limits by quarter.

Is the ERTC refundable?

Yes, the credit is fully refundable. Eligible employers can reduce upcoming payroll tax deposits to immediately realize the cash flow benefits.

Can I claim the credit for the 2020 quarters?

Yes, the credit can be retroactively claimed for qualified wages paid in 2020 by filing amended payroll tax returns. However, deadlines apply for each quarter.

What records should I maintain?

Detailed schedules of qualified wages paid by employee and quarter, revenue decline calculations, and health insurance costs are vital to support credits claimed.

Are there limits to the credit amount?

The credit is capped at $7,000 per employee per quarter in 2021. Different caps were applied in 2020. All wages above the cap are excluded.

Can I claim both PPP loan forgiveness and the ERTC?

No, wages used for PPP loan forgiveness cannot also be used for the ERTC. However, wages above the forgiveness amount may qualify.

Who can help me maximize my credit?

Engaging a tax professional can help maximize ERTC opportunities through planning, preparation of required support, and ensuring proper filing procedures.

When does my ability to amend returns and claim the credit expire?

Each quarter has time limits on when amended returns can be filed to claim credits for that quarter. Acting quickly is advised to avoid losing opportunities.

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