How to Qualify for ERTC
How to Qualify for ERTC
1. What is the Employee Retention Credit, and how does it work?
The Employee Retention Credit is a fully refundable tax credit equivalent to 50% of qualifying salaries (including allocable qualified health plan expenses) paid to employees by Eligible Employers. This Employee Retention Credit is valid for wages earned between March 12, 2020, and January 1, 2021. For all calendar quarters, the maximum amount of qualifying earnings taken into consideration for any employee is $10,000, resulting in a maximum credit of $5,000 for an Eligible Employer for qualified wages paid to any employee.
2. What Types of Employers Are Eligible? (This page was last updated on November 16, 2020)
Employers that carry on a trade or business during the calendar year 2020, including tax-exempt organizations, are eligible for the Employee Retention Credit if they either:
Due to COVID-19, fully or partially halt operations during any calendar quarter in 2020 if an appropriate governmental authority issues an order restricting commerce, travel, or group meetings (for commercial, social, religious, or other purposes); or
During the calendar quarter, revenue receipts decreased significantly.
Note that government employers are not eligible for the Employee Retention Credit. Self-employed people cannot claim this credit for their earnings, but they may claim it for wages paid to their employees. Tribal governments and tribal entities, on the other hand, may be Eligible Employers. See Is the Employee Retention Credit available to tribal governments and tribal entities?
See Determining Which Employers Are Eligible for the Employee Retention Credit for additional information.
3. When is the operation of a trade or business temporarily halted for the Employee Retention Credit?
Due to COVID-19, a relevant governmental authority restricts the employer's operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) such that the employer can continue some, but not all, of its regular operations.
See Determining When an Employer's Trade or Business Operations are Fully or Partially Suspended Due to a Governmental Order for additional information.
4. What does it mean to have a "substantial drop in gross receipts"?
A significant drop in gross receipts begins in the first calendar quarter of 2020 when an employer's gross receipts are less than half of what they were in the same calendar quarter last year. The considerable drop in gross receipts ends in the first calendar quarter following the first calendar quarter. The employer's quarterly gross receipts in 2020 are greater than 80% of its quarterly gross receipts in 2019 or the first calendar quarter of 2021.
See Determining When an Employer's Gross Receipts Have Decreased Significantly for more details.
5. What factors go into determining the maximum amount of the Employee Retention Credit given to Eligible Employers?
The Employee Retention Credit is equivalent to half of an Eligible Employer's eligible salaries (including qualified health plan expenses) paid in a calendar quarter. For all calendar quarters, the maximum amount of qualifying earnings considered for any employee is $10,000, resulting in a maximum credit for qualified wages paid to any employee of $5,000.
See Determining the Maximum Amount of an Eligible Employer's Employee Retention Credit for further information and examples.
6. What do you mean by "qualified wages"?
Wages (as defined in section 3121(a) of the Internal Revenue Code (the "Code")) and compensation (as defined in section 3231(e) of the Code) paid by an Eligible Employer to some or all employees after March 12, 2020, but before January 1, 2021, are referred to as qualified wages. The Eligible Employer's qualified health plan expenses that are correctly allocable to the wages are included in qualified wages.
The definition of eligible earnings is based partly on the Eligible Employer's average number of full-time employees (as defined in section 4980H of the Code) employed in 2019.
Qualified wages would be wages paid to an employee for the time when the employee is not providing services due to economic hardship, such as (1) a full or partial suspension of operations by a governmental authority due to COVID-19 or (2) a significant decline in gross receipts if the Eligible Employer averaged more than 100 full-time employees in 2019.
Qualified wages paid to an employee during the 30 days immediately preceding the period of economic hardship described in (1) or (2) above may not exceed what the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship described in (1) or (2) above.
Qualified wages are wages provided to any employee during any period of economic hardship indicated in (1) or (2) above if the Eligible Employer averaged 100 or fewer full-time employees in 2019.
See Determining Qualified Wages for further details.
7. What do you mean when you say "qualified health plan expenses"?
Qualifying health plan expenses are paid or incurred by an Eligible Employer to provide and maintain a group health plan that is correctly allocable to employees' qualified wages, but only to the extent that these amounts are excluded from the employees' gross income.
See Determining the Amount of Allowable Qualified Health Plan Expenses for additional information.
8. Does the CARES Act require employers to pay eligible wages to their employees?
No, employers are not required to provide eligible wages under the CARES Act. Additionally, Eligible Employers have the option of opting out of the Employee Retention Credit.
9. Can Eligible Employers use the Employee Retention Credit for wages earned in March 2020?
Employers who pay qualified salaries after March 12, 2020, but before January 1, 2021, are eligible for the Employee Retention Credit. As a result, an Eligible Employer may be eligible to claim the credit as early as March 13, 2020, for qualified wages earned.
10. Is it possible for an Eligible Employer to claim the Employee Retention Credit for wages paid beyond December 31, 2020?
The Employee Retention Credit applies only to wages earned after March 12, 2020, but before January 1, 2021.
11. Does the Employee Retention Credit apply to any employment taxes?
The credit can be applied to the employer's share of social security taxes paid under section 3111(a) of the Internal Revenue Code (the "Code"), as well as the portion of railroad employers' taxes paid under section 3221(a) of the Railroad Retirement Tax Act (the "RRTA") that corresponds to the social security taxes paid under section 3111(a) of the Code.
12. What is the "totally refundable" Employee Retention Credit?
Because the credit is entirely refundable, the Eligible Employer may get a refund if the credit amount exceeds certain federal employment taxes owed by the Eligible Employer. The excess is treated as an overpayment and refunded to the employer under sections 6402(a) and 6413(a) of the Internal Revenue Code (the "Code") if the amount of the credit the Eligible Employer is entitled to for any calendar quarter exceeds the employer's share of the social security tax on all wages (or on all compensation for employers subject to RRTA) paid to all employees.
The excess will be applied to balance any remaining tax burden on the employment tax return, and the amount of any residual excess will be reported as an overpayment on the return, consistent with its status as an overpayment. Before being reimbursed to the employer, the overpayment will be offset under section 6402(a) of the Code, much like other overpayments of federal taxes.
See Deferral of employment tax deposits and payments through December 31, 2020, for further information on the decrease in deposits for the credit and Deferral of payment and deposit of the employer's share of social security taxes due before January 1, 2021, under section 2302 of the CARES Act.
See How to Claim the Employee Retention Credit for further information on claiming the refundable Employee Retention Credit.
13. Do Eligible Employers have to withhold federal employment taxes from employees' eligible wages?
Yes. Qualified earnings are subject to federal income tax withholding, as well as the employer and employee portions of social security and Medicare taxes. (For further information on an Eligible Employer's ability to retain federal income tax withholding and the employee's portion of social security and Medicare taxes in an amount equivalent to the Employee Retention Credit, see How to Claim the Employee Retention Credit.) Qualified wages are also considered wages for additional benefits provided by the employer, such as 401(k) plan contributions.
14. Can an Eligible Employer claim both the FFCRA's tax credit for eligible leave wages and the CARES Act's Employee Retention Credit?
Yes, but not at the same rate of pay. The number of qualified wages for which an Eligible Employer can claim the Employee Retention Credit does not include the amount of qualified sick and family leave pay for which the employer is eligible for FFCRA tax credits.
See Interaction with Other Credit and Relief Provisions for further details.
15. Can an Eligible Employer receive both the Employee Retention Credit and a CARES Act-authorized Paycheck Protection Program (PPP) loan?
If an Eligible Employer obtains a PPP loan permitted under the CARES Act, the Eligible Employer will not be eligible for the Employee Retention Credit. Employee Retention Credits should not be claimed by an Eligible Employer who obtains a PPP loan.
See Interaction with Other Credit and Relief Provisions for further details.
https://sites.google.com/view/applyforerccredit
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Florida, USA
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How to Qualify for ERTC