The Employment Retention Tax Credit (ERTC) is a refundable and advanceable tax credit recently enacted to incentivize businesses to keep employees on their payroll during the COVID-19 pandemic. Employers claim the ERTC by withholding certain Federal payroll taxes in the amount of qualified employee wages. The benefit is up to $5,000 per employee in 2020 and up to $28,000 per employee in 2021. As a refundable credit, the IRS will issue a check for any amount in benefit that exceeds withholdings. Further, the rules allow employers to request advance payments for any refundable amount.
The ERTC, like many tax credits, requires a multi-phased assessment. Step one determines whether a company qualifies. Step two calculates the actual credit amount of the credit for each qualifying period. The qualification rules allow the credit to be claimed by companies that either (1) faced a substantial reduction in revenue or (2) was forced to close due to governmental order. Both of these situations are determined by a combination of statutory law and regulatory guidance, so if you think you might qualify or want to find out if you do, don’t hesitate to reach out to us.