Many eligible small businesses have yet to claim a very large tax credit that can bring employers tens of thousands of dollars or more in the form of a payroll tax credit.
The Employee Retention Tax Credit, which is still open and available, was passed under the CARES Act in 2020 to incentivize businesses to continue paying their employees during the COVID-19 pandemic. The ERTC offers tax refunds based on salaries paid to employees in 2020 and 2021.
Businesses should contact their accountant and payroll provider for assistance and to discuss all ERTC requirements.
Private sector employers and tax-exempt organizations may qualify for the ERTC for one of three reasons. One of the reasons is if the business experienced a full or partial suspension or shutdown for a quarter under a government order due to COVID-19. This may apply to businesses such as bars and restaurants, hairdressers, entertainment venues and dental practices that have been ordered closed in 2020 or 2021. Another reason is that the business has experienced a decline significant in its gross revenue in a quarter compared to 2019. Most companies meet this qualification due to the decline in business during the pandemic. The final reason is if the business is a startup recovery business, as defined by the IRS.
Once a business has determined its eligibility, refunds are requested by filing Form 941-X for each qualifying quarter.
ERTC reimbursement amounts can be significant. For 2020, the reimbursement can reach $5,000 per employee. For 2021, the reimbursement can reach $21,000 per employee.
There are many misconceptions about the ERTC, which can prevent small businesses from applying for the credit. A business owner may think, “My business is not eligible for ERTC because we received a PPP loan in 2020”. This is false (whereas it was true before). Businesses that have received PPP loans are allowed to claim ERTC, but the same wages cannot be used for both PPP rebate and ERTC.
Another misconception is: “I only have a few employees. There is no need to apply for the ERTC. This is also false. For example, if an employer paid six employees who were entitled to the full credit, the refund would be $30,000 for 2020 and $126,000 for 2021. The more employees paid, the greater the credit for the employer. raised.
Small businesses should explore the ERTC, as it is not too late to participate in this valuable program. Businesses have until early 2024 to file for the 2020 tax year and until early 2025 to file for the 2021 tax year.
Anne Bahr is Operations Support Manager at Ahola Payroll & HR Solutions in Brecksville.
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