Kewal Krishan & Co, Chartered Accountants
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  • 2023-09-11
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Employee Retention Tax Credits (ERTCs) are financial incentives provided by the government to businesses that maintain their staff during challenging economic periods. Specifically, the ERTC is a refundable tax credit against certain employment taxes. When businesses face hardships, such as a significant decline in revenues or a mandated shutdown due to unforeseen circumstances, they can claim this credit for retaining their employees. This system not only helps businesses navigate turbulent economic waters, but it also ensures that employees remain employed and continue to earn their wages. By understanding and making use of the ERTC, companies can achieve financial relief and bolster their resilience during economic downturns.

Eligibility Requirements for Employee Retention Tax Credits in 2020:

1. Significant Decline in Gross Receipts: A business must have experienced a 50% decline in gross receipts in any 2020 quarter when compared to the same quarter in 2019.

2. Government Mandated Shutdown: The business was fully or partially suspended due to a COVID-19-related government order.

3. Employee Count: For businesses with over 100 full-time employees, only wages paid to employees for the time they were not providing services qualify. For businesses with 100 or fewer employees, all wages paid qualify, whether the employee worked or not.

4. Limit on Wages: The maximum creditable wage amount was $10,000 per employee for all quarters combined, resulting in a maximum $5,000 credit per employee.

Eligibility Requirements for Employee Retention Tax Credits in 2021:

1. Significant Decline in Gross Receipts: A business must have experienced a 20% decline in gross receipts in any 2021 quarter when compared to the same quarter in 2019. Businesses could also use the previous quarter’s gross receipts for comparison.

2. Government Mandated Shutdown: Continuation from 2020, if a business operation was fully or partially suspended due to a COVID-19-related government order, they might qualify.

3. Employee Count: For the first two quarters of 2021, the threshold increased. If a business had 500 or fewer employees, all wages paid could qualify. This distinction was crucial for larger employers.

4. Increased Credit Rate and Wage Limit: The credit rate was increased from 50% to 70% of qualifying wages, and the wage limit was also increased to $10,000 per employee per quarter (potentially a $7,000 credit per employee per quarter).

5. Recovery Startup Businesses: Businesses started after February 15, 2020, with annual gross receipts of up to $1 million could claim the credit upto $50,000 per quarter for Q3 2021 and Q4 2021.

Here’s a comparative breakdown of the ERTC eligibility criteria for 2020 and 2021:

 

Criteria20202021
Decline in Gross Receipts50% decline in any quarter vs. same quarter in 201920% decline in any quarter vs. same quarter in 2019; option to use previous quarter’s receipts for comparison
Government Mandated ShutdownBusiness fully or partially suspended due to a government order related to COVID-19Continuation from 2020
Employee Count for Wages QualificationOver 100: Only wages for non-working hours
100 or fewer: All wages
500 or fewer: All wages
Wage Limit for Credit Calculation$10,000 per employee for all quarters combined$10,000 per employee per quarter
Credit Rate50% of qualifying wages70% of qualifying wages
PPP Loan RecipientsInitially ineligible, later amendedClarification to avoid double-dipping on wages
New Business ProvisionsNot applicableBusinesses started after Feb 15, 2020, with annual gross receipts up to $1 million can qualify
Advance PaymentsNot applicableAvailable for businesses with fewer than 500 employees
Health Plan Expenses InclusionNot explicitly mentionedCan include a portion of the cost for credit calculation

 

Understanding the Importance of ERTC Eligibility and Our Role in Assisting Businesses:

Navigating the financial challenges of recent times, businesses have increasingly come to realize the vital importance of the Employee Retention Tax Credit (ERTC). Being eligible for the ERTC is not just about accessing a financial relief tool; it’s about safeguarding the future of a business and protecting the livelihoods of its employees during unprecedented economic downturns.

The nuanced eligibility requirements, which evolved between 2020 and 2021, serve as gateways to significant tax credits, potentially saving businesses thousands, if not millions, of dollars. However, deciphering these criteria can be complex, especially given the periodic changes and amendments. Missing out on this opportunity due to a misunderstanding or oversight can have significant financial implications.

That’s where our expertise comes into play. We are committed to assisting businesses in navigating the intricate eligibility landscape of the ERTC. Our team provides comprehensive guidance, ensuring that businesses fully understand the requirements, can determine their eligibility, and subsequently, maximize their credit benefits. By partnering with us, businesses can be confident in their ERTC positioning, focusing on growth and stability, while we handle the intricacies of tax credit eligibility.

Navigating the intricate nuances of the ERTC can be challenging. To ensure you maximize your benefits and avoid potential IRS pitfalls, consult our tax credit expert Anshul Goyal for your Employee Retention Tax Credits today. Your business’s financial stability and compliance are paramount; let a tax credit expert guide you through the process.

Email: anshul@kkca.io , Phone: +1 (323)522-5584

Disclaimer: Please note that the information provided in this article does not constitute professional advice. The contents are intended for general information purpose only and It’s always recommended to seek counsel from a qualified professional or attorney familiar with your specific business situation before making any decisions.

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