Employee retention tax credit: better than PPP?

The employee retention tax credit (ERTC) is available to certain businesses financially impacted by Covid that retained their employees throughout the pandemic. It is a refundable credit of payroll taxes that could be up to $26,000 for each full-time employee.

Initially, businesses that had taken PPP money were not eligible for the credit, but they are now. However, businesses can’t claim the ERTC on wages that were used for PPP forgiveness. To be eligible for the credit, an employer must have either:

• Had operations that were fully or partially suspended due to Covid 19, or

• Experienced a “significant decline” in gross receipts. For 2020, the decline is 50%, and in 2021, it is only a 20% decline.

The credit is claimed by filing amended payroll tax reports (Form 941X) to claim the credit for 2020 and 2021.

If a business takes the credit, the income tax return will have to be amended because the business can’t claim a deduction on the wages that are used to compute the ERTC.

This is a brief summary of the ERTC and is not to be a comprehensive article on how to claim the credit. But every business owner should look into this!