what is Employee Retention Tax Credit (ERTC)

​The ERTC is a tax credit that can be refunded to businesses and can be worth up to $26,000 for each employee.
 
The ERTC was created to incentivize and reward businesses who continue to pay their employees and to encourage businesses to do so. Its coverage has been significantly increased to offer more financial aid to various enterprises.
 
From March 13, 2020, until December 31, 2021, employers may use the ERTC as a tax credit against the federal employment taxes associated with the eligible salaries they pay to their employees. The credit can be claimed retroactively by businesses and applied to previous quarters.

​How to get ERTC Credits?

​When filing their quarterly tax returns, businesses eligible for the ERTC must declare the total qualified salaries they paid their employees and the health insurance costs associated with those wages (Form 941 for most employers). This credit, which might be refunded, will be applied to the portion of the Social Security tax the employer is responsible for.
 
Employers cannot deposit the value of employment taxes up to the amount of the ERTC to avoid a penalty before getting the credit. This option is available whether or not the credit has already been received. Employers that meet the requirements but have less than 500 full-time workers can also submit a request for advance payment of ERTC benefits using IRS Form 7200. Employers with more than 500 workers on their payroll are ineligible to acquire an advanceable ERTC.
 
Even though the ERTC was terminated on October 1, 2021, businesses can still submit Form 941-X claims for retroactive ERTC refunds. This form can be used to amend employment taxes that have been filed within two years of the date that the employer paid the tax or within three years of the date that the original return was filed. Therefore, qualifying businesses that did not initially claim their ERTC have the opportunity to do so until 2024, depending on when they initially filed or paid their company taxes. However, this opportunity expires if the claim is not made. Employers must remember that this retroactive refund is only available for the tax year 2020 and the first three quarters of 2021; the eligibility criteria do not apply for the fourth quarter of 2021 or the tax year 2022 or later.

​​How much is ERT credit costs?
The amount of qualifying earnings paid to any individual worker in 2020 that can be used to compute the ERTC for all calendar quarters is not allowed to exceed $10,000. This limit applies to all calendar quarters. To put it another way, the employer is entitled to a credit of up to $5,000 ($10,000 multiplied by 50 percent) for each employee for each calendar quarter during which they pay wages that are eligible for the credit.
 
The maximum amount of qualifying wages received by each worker in 2021 that can be utilized to compute the ERTC is limited to a maximum of $10,000 for every quarter. To put it another way, the employer is entitled to a credit of up to $7,000 ($10,000 multiplied by 70 percent) for each employee for each calendar quarter for which they pay wages that are eligible for the credit. Any wages that are eligible and used in the calculation of the ERTC permitted will not be counted as wages for various other tax credits and PPP loan forgiveness.
 
It is essential to be aware that the ERTC is subject to income tax since the amount of the credit reduces the total salary deductions made by the employer. This is why it is essential to be aware of this fact.