Hiring? Small Businesses can regain labor costs through the Employee Retention Tax Credit

Retaining and recruiting the right talent can be tough at the best of times, but many businesses are entitled to get money back from the government through a credit against the employment taxes they pay.

Small and medium sized businesses can get cash back from the federal government through the Employee Retention Tax Credit (ERTC). This is a refundable credit that businesses can claim on qualified wages, including certain health insurance costs, paid to employees. 

How it works

The ERTC started with first federal Covid economic relief package, and it has been expanded to give businesses the opportunity to claim more money back from wages they paid to employees in 2020 through to the end of 2021.

ERTC is geared towards small and midsize businesses because you currently need to have 500 employees or less to be eligible.

On top of the employee threshold, businesses currently need to:

• see a 20% reduction in gross receipts in one 2021 quarter compared to the same quarter in 2019, or
• have been partially or fully shut down by government during the quarters for which they are claiming the ERTC
• see gross receipts in a calendar quarter below 50% of gross receipts when compared to the same calendar quarter in 2019 to qualify

The first economic relief package did not allow businesses receiving Paycheck Protection Program loans to claim the ERTC, but they can now, as long as they exclude any PPP loan money used to pay wages, and importantly, have not applied for PPP loan forgiveness. 

What can you get?

Eligible businesses can claim up to 70% back on up to $10,000 in wages paid to employees, or a maximum amount of $7,000 per employee for each quarter of the calendar year. Start-ups that were formed after Feb. 15, 2020 and were forced to shut down may be allowed a larger credit.

How do you claim?

For an employer who has already paid 2020 taxes, the ERTC can reduce overall liability and the cash claimed retroactively. To get the ERTC money back in the form of a refund on taxes already paid, business must fill out an advance payment form or Form 7200 with the Department of Treasury’s Internal Revenue System or it can be processed with the help of an accountant.

Employers must keep the eligibility requirements in mind, and only claim ERTC money for the quarters in which they qualify.

If you have questions or need more information, please get in contact with your local TaxAssist Advisor who will be pleased to help.

Last updated: 8th July 2022