It’s not too late to claim the employee retention tax credit
For 2020, an employer with 100 or fewer full-time employees (measured in 2019) can use all eligible payroll costs to determine the amount of the credit. If the number of employees exceeds 100, the credit is limited to eligible costs paid to employees who have been terminated or are not working for the company. For 2021, the number of employees increases to 500 or a few employees to be able to claim all eligible salary costs.
An employer calculates their credit using wages subject to social security contributions and amounts paid by the employer to provide a group health plan. These eligible costs are capped at $10,000 per employee per quarter.
The credit for 2020 is 50% of eligible costs per employee up to a maximum of $5,000. Regardless of the number of quarters in 2020 that the employer is eligible for the CIFE, the credit cannot exceed $5,000 per employee.
The ERTC is much more generous in 2021 and is limited to 70% of eligible costs per employee up to a maximum of $7,000. Unlike in 2020, the cap on eligible costs per employee applies each quarter in 2021. Assuming an employer is eligible for all 3 quarters of 2021 and an employee has eligible salary costs of at least 10,000 $ per quarter, the employer credit is $7,000 per quarter. , or a total of $21,000 for this employee.
If a business has received a PPP loan, the payroll costs used to obtain forgiveness of that loan are not eligible for ERTC.
Certain so-called “turnaround start-up” employers are eligible for the ERTC for the fourth quarter of 2021 in addition to the other quarters of the ERTC program. A takeover start-up is a business that began operations after February 15, 2020 and has average annual gross revenue of less than $1 million.
Applications for ERTC are made by amending the Quarterly Federal Income Tax Return, Form 941, for each qualifying quarter. Amended payroll statements must be mailed to the IRS, and due to IRS processing backlogs, employers are waiting an average of nine to 12 months for refunds. The ERTC is fully refundable even if the payroll taxes paid by the employer for that quarter are less than the credit.