The COVID-19 pandemic had an impact on everyone. Businesses were forced to close their doors, economic conditions became a serious conversation, and consumers struggled to make ends meet.
Even through these trying times, some employers did everything they could to keep their employees on the books, but it wasn’t easy for most.
Your business may still be struggling to recover from the pandemic. The good news is that there’s a tax credit that may help. It’s known as the Employee Retention Tax Credit, and it could lead to a refund of up to 50% of the qualified wages you paid to your employees during the COVID-19 pandemic.
What Is the Employee Retention Tax Credit (ERTC)
The Employee Retention Tax Credit was introduced as part of the CARES act and is a refundable tax credit that was designed to help businesses recover if retained their employees throughout the pandemic. If that’s you, you may qualify for a tax refund amounting to 50% of the qualified wages and health plan expenses you paid to your employees in 2020 and 70% of the qualified wages and health plan expenses you paid to your employees in 2021.
This tax credit only applies to wages that you paid between March 12, 2020, and September 30, 2021. Although this time period has passed, the timeframe to claim your refund has not. In fact, you have until your 2024 tax return to claim the ERTC.
As with any other tax credit, there are limits to the amount of money the IRS is willing to refund you as part of the Employee Retention Tax Credit. The limits on the tax credits for 2020 are different from the limits on tax credits for 2021. Here’s how it works:
- 2020: The ERTC covers 50% of wages paid up to $10,000 per employee per year. That means the maximum refund per employee for 2020 is $5,000.
- 2021: The ERTC covers 70% of wages paid up to $10,000 per employee per calendar quarter. Since the credit stopped in the third quarter, that means you can claim up to $30,000 per employee in 2021 and may receive up to $21,000 per employee in tax credits.
What Are Qualified Wages
The term qualified wages differs depending on the size of your company. If you employ under 100 people, qualified wages are the legal wages you paid your employees for time on or off the clock. If you employ more than 100 people, qualified wages are wages you paid your employees while they weren’t providing services to your company.
How to Claim Your Employee Retention Tax Credit
You can claim your employee retention tax credit by filing Form 941 with the IRS as part of your next Employer’s Quarterly Tax Return. However, the tax code is often complex and it may be a good idea to speak with an accountant before you file.
The Employee Retention Tax Credit might be the lifeline your business needs to make a full recovery from the COVID-19 pandemic. Your friends at K & M Taxes are here to help if you need assistance.