What is the Employee Retention Tax Credit (ERTC)?
The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit that was introduced by the US government as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The ERTC was designed as a financial incentive for eligible employers to retain their employees during the COVID-19 pandemic, and businesses that qualify can receive up to $5,000 per employee in tax credits. In this expert's guide, we will delve into who qualifies for the ERTC, eligibility requirements, how credit calculations are made, and the application process. We'll also address some of the common misconceptions about the ERTC that many business owners and tax professionals have had during this unprecedented time.
Who Qualifies for the ERTC?
Employee retention tax credit, or ERTC, is a refundable payroll tax credit designed to provide financial relief to businesses impacted by the COVID-19 pandemic. The credit is available to eligible employers who have experienced significant revenue decline or have been partially or fully suspended due to government orders.
Eligible Employers
To qualify for the ERTC, businesses must meet the eligibility requirements set forth by the IRS. These requirements vary depending on the size of the business and the impact of the pandemic on their operations. Generally, eligible employers include those with less than 500 full-time employees or those that have been partially or fully suspended due to government orders.
Qualified Wages
Eligible employers may claim a credit for qualified wages paid to employees during a specific time period. The credit is calculated based on a percentage of the qualified wages paid up to a maximum amount per employee. Qualified wages are wages paid to employees during a calendar quarter and include health plan expenses.
Employee Retention Criteria
To claim the credit, eligible employers must satisfy employee retention criteria. This includes retaining employees during the period for which the credit is claimed and maintaining wages and benefits consistent with pre-pandemic levels. The retention criteria applies to both full-time and part-time employees.
Application Process
Employers can claim the ERTC on their quarterly employment tax returns or on an adjusted employment tax return for the applicable quarter. Employers can also request an advance payment of the credit if the amount they’re eligible for exceeds their employment taxes owed.
Common Misconceptions
One common misconception about the ERTC is that it’s only available to businesses that have received loan funds from the Paycheck Protection Program (PPP). However, the ERTC is available to all eligible employers, regardless of whether they received PPP funding.
Another misconception is that the credit is only available to businesses that have been fully or partially shut down. While such businesses are eligible, the ERTC is also available to businesses that have experienced a significant decline in revenue due to the COVID-19 pandemic.
Tax professionals can assist eligible employers with the credit calculations and the application process. Small businesses and recovery startup businesses may benefit greatly from the ERTC as it provides much-needed financial relief during these challenging times.
Eligible Employers
Eligible employers play a crucial role in determining who qualifies for the Employee Retention Tax Credit (ERTC) during the COVID-19 pandemic. These are businesses that have been impacted by the pandemic in one way or another, whether through government-mandated shutdowns or a substantial decline in revenue.
To qualify for the ERTC, eligible employers need to meet specific criteria set forth by the Internal Revenue Service (IRS). Generally, eligible employers have less than 500 full-time employees or have been partially or fully suspended due to government orders. However, businesses that have experienced a significant decline in revenue due to the pandemic are also eligible.
One essential aspect of qualified employers is the impact they have on the economy. Eligible businesses can claim a refundable payroll tax credit based on wages paid to employees. This tax credit is designed to help businesses retain their employees and maintain their operations.
To claim the ERTC, eligible employers must meet employee retention criteria. This means they are required to retain their employees throughout the period for which the credit is claimed, as well as maintaining wage and benefit levels consistent with pre-pandemic standards. The retention criteria applies to both full-time and part-time employees, making it easier for businesses of any size to utilize the credit.
The application process for the ERTC is relatively straightforward. Eligible employers can claim the credit on their quarterly employment tax returns or request an advance payment of the credit if they meet specific criteria. The IRS has implemented guidelines to help employers navigate the application process, and tax professionals can provide valuable assistance in interpreting the regulations.
In conclusion, eligible employers are essential to determining who qualifies for the ERTC during the COVID-19 pandemic. These businesses have been impacted by government shutdowns, a decline in revenue, or other pandemic-related factors that affect the economy. By providing a refundable payroll tax credit based on qualified wages paid to employees, the ERTC helps eligible employers retain their staff and maintain business operations during these challenging times.
Businesses Affected by Full or Partial Shutdowns
Businesses across the globe have experienced significant hardship due to the COVID-19 pandemic. The pandemic forced businesses to navigate closures, partial shutdowns, and reductions in operation, causing economic uncertainty for countless business owners. One of the defining features of the pandemic's economic fallout is the interconnected way in which businesses have been impacted.
The businesses that have been affected by partial or full shutdowns are among the hardest hit. These businesses are typically in industries that rely on in-person interaction or group events, such as entertainment and hospitality. The sudden reduction in revenue has led many business owners to lay off employees or close their doors permanently.
The Paycheck Protection Program (PPP) was designed to provide funds for businesses affected by partial or full shutdowns. Through the PPP, eligible businesses can receive forgivable loans to cover payroll costs, rent, and utilities. The PPP has provided a lifeline for many businesses that were at risk of permanently closing. However, it is important to note that businesses must meet certain eligibility requirements to qualify for the program.
Another resource available to businesses affected by partial or full shutdowns is the Employee Retention Tax Credit (ERTC). The ERTC was created to encourage businesses to keep their employees on staff, even during times of hardship. Eligible businesses can receive a refundable tax credit based on the wages paid to employees.
Eligibility for the ERTC has recently expanded, making it more accessible to a wider range of businesses. The new legislation provides a credit of up to $7,000 per employee per quarter. This tax credit can be claimed retroactively for the first and second quarters of 2021. Businesses can claim the credit on their quarterly employment tax returns, or as an advance payment if they meet specific criteria.
In conclusion, businesses affected by partial or full shutdowns have several resources available to them to help weather the storm. While the PPP and ERTC have been instrumental in helping businesses stay afloat during the pandemic, it is essential for business owners to educate themselves on the eligibility requirements and application processes for these programs. Consulting with a tax professional can also provide valuable guidance in utilizing these resources to the fullest extent possible.
Experiencing Significant Declines in Gross Receipts
As the COVID-19 pandemic continues to ravage businesses across the country, many have experienced significant declines in their gross receipts. These declines have prompted changes in the way business owners operate, and have led many of them to seek relief through various government programs and funding opportunities.
One such program is the Employee Retention Tax Credit, or ERTC. This credit was designed to provide relief to businesses that have experienced a decline in gross receipts of 50% or more compared to the same quarter in the previous year. The ERTC provides a refundable tax credit to eligible businesses equal to 50% of qualified wages paid to employees, up to a maximum of $5,000 per employee.
Businesses that experienced a decline in gross receipts of 20% or more in a calendar quarter of 2020 compared to the same quarter in 2019 are also eligible for the ERTC, but with certain limitations. The credit is limited to 50% of qualified wages paid to employees in that same calendar quarter, and the maximum credit per employee is $5,000 for the entire year.
To qualify for the ERTC, businesses must also meet certain employee retention requirements. These requirements state that during the calendar quarter in which the credit is claimed, the employer must maintain at least 80% of the average number of full-time employees compared to the same period in 2019.
In addition to the ERTC, many businesses have sought funding through the Paycheck Protection Program, or PPP. This program is designed to provide forgivable loans to eligible businesses to cover payroll costs, rent, and utilities. The PPP has provided a lifeline for many businesses that were at risk of permanently closing.
For businesses that have experienced significant declines in gross receipts, it is important to explore all available funding opportunities and government programs. Working with a tax professional can also help ensure that the business is taking advantage of all available tax credits and deductions to help offset losses due to the pandemic.
Eligibility Requirements
The Employee Retention Tax Credit (ERTC) is a program designed to provide relief to businesses that have been impacted by the economic effects of the COVID-19 pandemic. However, not all businesses may qualify for this credit. To be eligible for the ERTC, businesses must meet specific eligibility requirements.
One of the main eligibility requirements is that the business must have experienced a decline in gross receipts. Specifically, the business must have experienced a decline of 50% or more in gross receipts in a calendar quarter compared to the same quarter in the previous year. Alternatively, businesses that experienced a decline of 20% or more in gross receipts in a calendar quarter in 2020 compared to the same quarter in 2019 may also be eligible for the ERTC. However, in this case, there are certain limitations to the credit.
Additionally, to qualify for the ERTC, businesses must have employed an average of 500 or fewer full-time employees in 2019. The program specifically focuses on small to mid-size businesses that have been most severely impacted by the pandemic.
Furthermore, the credit is available to businesses that continued to pay employees during partial or full suspension of operations due to government orders. The suspension must have lasted for at least one calendar quarter and must have resulted in a significant decline in gross receipts.
Another important eligibility requirement is that businesses must have maintained their level of employment during the period they are claiming the ERTC. Specifically, during the calendar quarter in which the credit is claimed, the employer must maintain at least 80% of the average number of full-time employees compared to the same period in 2019.
Finally, the ERTC can only be claimed against qualified wages paid between March 12, 2020, and December 31, 2021. These wages must be paid to employees who have not been furloughed or laid off during the covered period.
In conclusion, the eligibility requirements for the ERTC are specific and designed to assist small to mid-size businesses that have been severely impacted by the pandemic. If your business meets these requirements, it may be eligible for the ERTC, which can provide essential relief during these challenging times.
How to Calculate Gross Receipts Reduction
One of the key eligibility criteria for the Employee Retention Tax Credit (ERTC) is to have experienced a significant decline in gross receipts. This means that businesses will need to calculate their gross receipts to determine if they qualify for the credit.
The IRS considers gross receipts as the total amount of money a business takes in from all sources, including sales of goods or services, interest, dividends, rents, royalties, and other types of income. However, gross receipts do not include capital gains or any money returned to customers as refunds or allowances.
To calculate your business’s gross receipts reduction, you will need to compare the gross receipts from a calendar quarter in 2020 or 2021 to the gross receipts from the same quarter in 2019. For example, if your business wishes to claim the ERTC for the third quarter of 2021, you will need to compare the gross receipts from July to September 2021 to the gross receipts from July to September 2019.
If the gross receipts have declined by 50% or more for the applicable calendar quarter, your business will meet the criteria for the full ERTC. It's also important to note that an alternative test is available for businesses that don't qualify for the ERTC under the 50% decline rule.
The alternative test is for businesses that have experienced a decline in gross receipts of more than 20% but less than 50% in any of the calendar quarters in 2020 or 2021. Under this test, the credit is limited to wages paid to employees during the quarter in which the decline occurred.
When it comes to claiming the ERTC, it's vital to accurately calculate the gross receipts reduction. Failure to do so may result in incorrect claims, delays in receiving refunds, or even penalty charges.
In summary, calculating your gross receipts reduction is a crucial step in determining if your business is eligible for the ERTC. Ensure to correctly compare your gross receipts for the appropriate calendar quarter from 2019 to the current year to determine if your business meets the required criteria. Lastly, consider working with a professional tax advisor to ensure your calculations are accurate and you receive the maximum credit available to you.
Qualified Wages and Employees Per Quarter
Qualified wages and employees per quarter are important criteria to consider when determining eligibility for the employee retention tax credit (ERTC). The ERTC is a refundable tax credit that helps eligible employers keep employees on their payroll during the COVID-19 pandemic.
Qualified wages are defined as wages paid to employees during eligible quarters. Eligible wages can include payments for healthcare benefits, but not sick leave or paid time off. Qualified wages also vary depending on the size of the employer.
For employers with fewer than 500 full-time employees, qualified wages are those paid to employees during quarters that meet the gross receipts test. For example, if a business experienced a decline in gross receipts of 50% or more compared to the same quarter in 2019, they would be eligible to claim the ERTC for all qualified wages paid during that quarter.
For larger employers, qualified wages are those paid to employees during quarters when the business's operations were partially or fully suspended due to government orders related to the COVID-19 pandemic. These employers can still claim the ERTC even if they did not experience a decline in gross receipts.
It's also important to note that eligible employees per quarter are limited to 500 regardless of the size of the employer. This means that the maximum credit per employee is $7,000 for each of the first two quarters of 2021, resulting in a potential credit of up to $14,000 per employee for the year.
Employers should consult with their tax professionals or payroll companies to ensure they accurately calculate qualified wages and employees per quarter. The application process for the ERTC can also be complex, but utilizing the credit can provide much-needed relief to businesses during these challenging times.
Maximum Credit Amount per Employee
One of the most important factors in determining the value of the Employee Retention Tax Credit (ERTC) is the maximum credit amount that can be claimed for each employee. This credit, which was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was designed to help businesses retain their employees during the economic downturn caused by the Covid-19 pandemic.
The maximum credit per employee varies depending on the date the wages were paid. For wages paid between March 13, 2020, and December 31, 2020, the maximum credit amount per employee was $5,000. However, the Consolidated Appropriations Act, 2021, which extended and expanded the ERTC, increased the maximum credit amount per employee to $7,000 for wages paid between January 1, 2021, and December 31, 2021.
It's also important to note that eligible employees per quarter are limited to 500, regardless of the size of the employer. This means that businesses can claim a maximum of $14,000 in credit per employee for the year, assuming that they were eligible for the full credit amount for each quarter.
To calculate the maximum credit amount per employee, businesses must determine their qualified wages for each eligible quarter. Qualified wages are wages paid to an employee during an eligible quarter, subject to certain limitations. In general, qualified wages are limited to $10,000 per employee per quarter. This means that a business can claim a maximum credit amount of $5,000 per employee for each eligible quarter between March 13, 2020, and December 31, 2020, and a maximum credit amount of $7,000 per employee for each eligible quarter in 2021.
It's worth noting that the maximum credit amount per employee is a refundable credit, which means that businesses can receive a refund for any unused credit amount. Additionally, businesses can choose to receive an advance payment of the credit by reducing their federal employment tax deposits. This can help businesses access the credit sooner, providing much-needed financial relief during these uncertain times.
In conclusion, the maximum credit amount per employee is an important factor in determining the value of the ERTC. With a maximum credit amount of up to $14,000 per employee for the year, businesses can receive significant financial relief by retaining their employees and keeping their operations running smoothly. By understanding the rules and requirements for claiming the ERTC, businesses can take advantage of this valuable tax credit and help ensure their long-term success.
Advance Payment of ERTC Credits
The Employee Retention Tax Credit (ERTC) was introduced as a part of the CARES Act in March 2020 to provide relief to eligible employers who faced financial difficulties due to the COVID-19 pandemic. This refundable tax credit provides an incentive to employers to retain their employees during the pandemic by providing a credit against certain employment taxes. In addition to the refundable credit, eligible employers also have the option to receive an advance payment of the ERTC credit, making it easier for them to get the much-needed financial assistance during difficult times.
An advance payment of the ERTC is simply a pre-payment of the tax credit, which is calculated based on the qualified wages paid to eligible employees. Employers who qualify for the ERTC can reduce their federal employment tax deposits by an amount equal to the applicable ERTC for a calendar quarter, which effectively provides an advance payment on their tax credit.
To take advantage of this advance payment option, eligible employers must complete Form 7200 and submit it to the IRS. The form allows employers to request an advance payment of the anticipated ERTC for the applicable quarter. It is important to note that the advance payment is not automatic and must be requested by the employer.
While the advance payment option of the ERTC may seem like an attractive option for many employers, it is important to weigh the pros and cons before making a decision. By requesting the advance payment of the ERTC, employers may reduce their cash flow and working capital, which can make it difficult to meet other financial obligations. Additionally, if the employer later determines that they are not eligible for the ERTC in the full amount, they may be required to repay the advance payment, which can create additional financial strain.
Despite the potential drawbacks, for eligible employers who are struggling in these challenging times, the advance payment of the ERTC credit can provide much-needed financial relief. The payment can help alleviate some of the financial burden that may be associated with retaining employees and maintaining payroll during the pandemic, thereby enabling the business to recover more quickly.
In summary, the ERTC, along with its advance payment option, can provide significant financial relief to eligible employers facing economic hardship due to the COVID-19 pandemic. However, employers should carefully weigh the pros and cons of the advance payment option before making a decision, and ensure that they meet all eligibility criteria and credit calculations before submitting the required forms.
Conditions for Advance Payment Availability
The Employee Retention Tax Credit (ERTC) has been a lifeline for many eligible employers during the COVID-19 pandemic, providing a refundable payroll tax credit for businesses that were financially impacted by the crisis. Many businesses have been able to take advantage of the advance payment option of the ERTC, which provides an early payment of the credit before the employer files their employment tax returns.
However, it's important to note that there are certain conditions that must be met in order to be eligible for the advance payment of the ERTC. One of the main criteria is that the employer must have experienced a significant decline in revenue due to the pandemic. Specifically, businesses that experienced a decline in gross receipts of at least 50% in a calendar quarter compared to the same quarter in the previous year are eligible for the advance payment.
Additionally, employers must have paid qualified wages to their employees during the applicable quarter, and have an eligible business operation that has either been partially or fully suspended due to a government order related to COVID-19, or have experienced a significant decline in gross receipts as mentioned above.
When it comes to calculating the ERTC, eligible wages are determined based on the number of full-time and part-time employees working during the applicable quarter. Full-time employees are defined as those who work an average of at least 30 hours per week, while part-time employees are those who work less than an average of 30 hours per week. Qualified wages are capped at $10,000 per employee per quarter, meaning that the maximum credit per employee is $5,000 for the entire year.
To request an advance payment of the ERTC, eligible employers must complete Form 7200 and submit it to the IRS. The form allows employers to estimate the amount of the credit they expect to claim on their quarterly employment tax return, and request an early payment for that amount. Employers can request the advance payment for any quarter in which they are eligible for the credit, but they must do so before the end of the quarter following the quarter in which the wages were paid.
It's important to note that if an employer receives an advance payment of the ERTC and later determines that they are not eligible for the full amount of the credit, they may be required to repay the excess amount. Additionally, the advance payment can have an impact on the employer's cash flow, so it's important for businesses to carefully consider their financial situation before requesting the payment.
In conclusion, the advance payment option of the ERTC can provide much-needed financial relief for eligible employers during the COVID-19 pandemic. However, it's important to meet the eligibility criteria and carefully consider the potential drawbacks before requesting the payment. Tax professionals can help businesses navigate the application process and determine whether the advance payment is the right option for their particular financial situation.
Recovery Startup Businesses and ERTC Credits
Recovery startup businesses have been hit particularly hard by the COVID-19 pandemic. Many have had to close their doors or scale back operations, leading to significant revenue losses and financial hardship. Fortunately, the Employee Retention Tax Credit (ERTC) provides a lifeline for these businesses, offering a refundable payroll tax credit that can help them navigate this difficult time.
To be eligible for the ERTC, recovery startup businesses must meet certain criteria. First, they must have experienced a significant decline in gross receipts due to the pandemic. Specifically, businesses that experienced a decline in gross receipts of at least 50% in a calendar quarter compared to the same quarter in the previous year are eligible for the credit. Additionally, eligible businesses must have paid qualified wages to their employees during the applicable quarter and have an eligible business operation that has either been partially or fully suspended due to a government order related to COVID-19, or have experienced a significant decline in gross receipts as previously mentioned.
One of the benefits of the ERTC for recovery startup businesses is its flexibility. The credit is calculated based on eligible wages and can be applied to payroll taxes incurred between March 13, 2020, and December 31, 2021. This means that eligible businesses can receive the credit for wages paid to their employees during this entire period, regardless of when they experienced the decline in gross receipts.
Furthermore, the ERTC can be used in conjunction with other pandemic-related relief programs, including the Paycheck Protection Program (PPP). However, eligible businesses cannot claim the ERTC on wages that have been paid for with PPP loan funds.
For eligible quarters, qualified wages are capped at $10,000 per employee per quarter, meaning that the maximum credit per employee is $5,000 for the entire year. This makes the ERTC an attractive option for recovery startup businesses with a smaller workforce and lower payroll expenses.
To request an advance payment of the ERTC, eligible businesses must complete Form 7200 and submit it to the IRS. The form allows businesses to estimate the amount of the credit they expect to claim on their quarterly employment tax return and request an early payment for that amount.
In conclusion, the ERTC provides much-needed relief for recovery startup businesses struggling to stay afloat during the COVID-19 pandemic. By meeting the eligibility criteria and taking advantage of the credit's flexibility, these businesses can take an important step towards financial stability and long-term success.
Calculating the ERTC Credit Amount
Calculating the ERTC credit amount can be a complex process that requires careful attention to detail. The credit is based on the wages paid to employees, which means that businesses must have accurate records of their payroll expenses. In this article, we will explore the various factors that go into calculating the ERTC credit amount, including the maximum credit per employee, qualified wages, and credit-generating periods.
One of the key factors that businesses need to consider when calculating the ERTC credit amount is the maximum credit per employee. The credit is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 per employee per quarter. This means that the maximum credit per employee is $7,000 per quarter, or $28,000 for the entire year.
Qualified wages are another important factor in calculating the ERTC credit amount. Qualified wages are wages paid to employees during periods when the business has experienced either a full or partial suspension of operations due to a government order related to COVID-19, or during periods of significant decline in gross receipts. For businesses with more than 100 employees, qualified wages are limited to wages paid to employees who are not performing services during the applicable period. For businesses with 100 or fewer employees, qualified wages include all wages paid during the applicable period.
Finally, businesses need to consider the credit-generating periods when calculating the ERTC credit amount. The credit is available for qualified wages paid between March 13, 2020 and December 31, 2021. Businesses can claim the credit for qualified wages paid in any calendar quarter in 2020 or 2021, as long as they meet the eligibility criteria for that quarter.
To calculate the ERTC credit amount, businesses will need to gather information about the wages paid to employees during the applicable periods. This information will include the number of full-time and part-time employees, their hourly wage rates, and the number of hours worked during the applicable periods. Businesses will also need to keep detailed records of any government orders that led to full or partial shutdowns, as well as any periods of significant decline in gross receipts.
In conclusion, calculating the ERTC credit amount can be a complex process, but it is an important step in maximizing the benefits of this refundable payroll tax credit. By understanding the various factors that go into calculating the credit amount, businesses can ensure that they are taking full advantage of this valuable pandemic relief program.
Calculating Qualified Health Plan Expenses
When applying for the Employee Retention Tax Credit (ERTC), businesses must also consider their qualified health plan expenses (QHPE) when calculating their credit amount. These expenses are eligible for the tax credit as long as they are paid for eligible employees during a period of time when the business was experiencing either a full or partial suspension of operations due to a government order related to COVID-19 or during periods of significant decline in gross receipts.
To calculate QHPE, businesses should consider all costs related to the provision of a qualified health plan for their employees. This includes the portion of premiums paid for medical, vision, and dental insurance for eligible employees. It is important to note that QHPE only applies to eligible employees, which means that businesses will need to determine which employees are eligible in order to calculate their credit amount accurately.
Eligible employees are those who are not owners or their spouses, children, or grandchildren. This definition includes all other employees who work for the business, regardless of whether they are full-time, part-time, or seasonal workers. It is also important to note that for businesses with more than 100 employees, QHPE is limited to wages paid to employees who were not providing services during the applicable period.
Once businesses have determined which employees are eligible for QHPE, they can calculate their credit amount. The credit for QHPE is calculated as 70% of the amount of QHPE paid for each eligible employee during the applicable period, up to a maximum of $10,000 per employee for all calendar quarters combined. This means that businesses can claim a maximum of $7,000 in credit per employee for their QHPE expenses during any one calendar quarter.
Calculating QHPE and the ERTC credit amount can be a complex process, especially for businesses with many employees or unique circumstances related to their operations. It is recommended that businesses work with their tax professionals or payroll company to ensure that they are calculating their credit accurately and taking advantage of all eligible expenses. It is also important to keep accurate records of all expenses and eligibility criteria in case of an audit by the federal government. By accurately calculating their QHPE, businesses can benefit from a higher ERTC credit and help to offset some of the economic hardship caused by the COVID-19 pandemic.
Calculation of Wages Paid to Each Employee
When it comes to claiming the employee retention tax credit (ERTC), one of the key factors that businesses must consider is calculating the wages paid to each eligible employee. This is because the credit amount is based on the qualified wages paid to each employee during the applicable quarter.
To determine the wages paid to each eligible employee, businesses need to take into account several factors. The first is the definition of an eligible employee. An eligible employee is someone who works for the business during the applicable quarter and whose services were either partially or fully suspended because of a governmental order related to COVID-19 or who experienced a significant decline in gross receipts.
Once businesses have determined which employees are eligible, they can calculate their qualified wages. Qualified wages are defined as the total wages and compensation paid to each eligible employee during the applicable quarter, up to a maximum of $10,000 per employee per quarter.
It’s important to note that qualified wages include not only the employee’s regular wages but also certain health care costs and employer contributions to retirement plans. These can include the cost of providing and maintaining a group health plan, including insurance premiums and expenses related to coverage, as well as contributions to defined benefit or defined contribution retirement plans.
However, there are certain types of compensation that are not considered qualified wages for the ERTC. These include sick leave wages paid under the Families First Coronavirus Response Act, wages paid to employees who are related to the employer, and any wages taken into account for the employee retention credit under the CARES Act or any other COVID-19 relief legislation.
Once businesses have calculated their qualified wages for each eligible employee, they can determine the credit amount. The ERTC is equal to 70% of the qualified wages paid to each employee during the applicable quarter, up to a maximum of $10,000 per employee per quarter. This means that businesses can claim a maximum credit of $7,000 per employee per quarter for their qualified wage expenses.
In conclusion, calculating the wages paid to each eligible employee is essential to claiming the ERTC. Businesses must take into account the definition of an eligible employee, the types of compensation that qualify as wages, and the maximum credit amount when determining their credit entitlement. It is recommended that businesses work with tax professionals to ensure that they are accurately calculating their qualified wages and maximizing their ERTC benefit.
