Employee retention tax credits (ERTC) are a form of financial incentive offered by the government to businesses that retain and continue to pay their employees during the COVID-19 pandemic. These credits are designed to help businesses cover the costs of keeping their employees on payroll, even during periods of economic hardship.
The ERTC program was first established as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed by Congress in March 2020. The program provides eligible employers with a credit against their payroll taxes for each quarter of the year, equal to 50% of the wages paid to employees during that quarter, up to a maximum of $5,000 per employee per quarter.
To be eligible for the ERTC
A business must have experienced a significant decline in gross receipts during a specific quarter compared to the same quarter in the previous year. Additionally, the business must have retained its employees and continued to pay them, despite the decline in revenue.
The ERTC can be used to offset payroll taxes, including the employer’s portion of Social Security and Medicare taxes. Any remaining credit balance can be refunded to the employer.
The ERTC program is set to expire on December 31, 2020, but it has been extended to December 31, 2021 in the Consolidated Appropriations Act, 2021. The extension increases the credit rate from 50% to 80% for wages paid between January 1, 2021 and June 30, 2021.
The ERTC program is a valuable tool for businesses struggling to keep their employees on payroll during the pandemic. It helps to ease the financial burden of paying wages while revenue is down and can be a significant source of relief for businesses of all sizes. Employers should consult with their tax advisor to determine their eligibility and calculate the credits they can claim.
