Although ERTC expired at the end of 2021, there’s still time for eligible businesses to claim the credit, if they haven’t already.
According to Kenneth Smith, Senior Sales Executive with Clarus Solutions, confusion still runs high surrounding whether businesses are aware of their eligibility, and the hope is to provide clarity surrounding available funds.
“For example, 98% of restaurants are eligible for ERTC. Just because they didn’t have a decline in gross receipts year over year, doesn’t mean they aren’t eligible. In fact, anyone who had in-door dining is typically eligible due to the capacity restrictions.”
How to Qualify for ERTC
Companies qualify for the ERTC if they (1) had a substantial decline in quarterly gross revenue, or (2) were fully or partially shut down due to governmental orders, or (3) began a new trade or business and previously had less than $1 million in average annual revenue.
“…The credit can be claimed on amended payroll tax returns as long as the statute of limitations remains open, which is three years from the date of filing,” said Brent Johnson, co-founder of Clarus Solutions.
It’s also important to note that companies can still claim ERTC even if they have already received their PPP loan (and unlike the PPP loan, they do not have to pay ERTC back.)
Breaking Down ERTC
The Employee Retention Tax Credit is an incentive program enacted as part of Congress’s response to the COVID-19 crisis. It is intended to provide economic relief to employers whose operations were impacted by government orders associated with the pandemic, yet continued to pay employees.
The ERTC, under the CARES Act, is a fully refundable payroll tax credit that allows eligible businesses to deduct up to 70 percent of up to $10,000 in qualified wages paid per employee per quarter for tax year 2021.
One way to determine eligibility is to look at the decline in gross receipts. For 2020, an employer should compare quarters 2, 3, and 4 to the same quarter in 2019, looking for a 50% decline in gross revenue. For 2021, an employer should compare quarters 1, 2, and 3 quarters compared to the same quarter in 2020, looking for a 20% decline.
Even though ERTC expired at the end of 2021, doesn’t mean you still can’t claim it.
According to Smith, “You can file amended 941-X forms to claim ERTC up to 3 years after your original filing date. With that being said, Clarus has seen it take an average of about 9 months for clients to receive the funds from the IRS from the time we file. So it’s not a bad idea to try and get the process started sooner than later, and get your spot in line.”
There is no size limit on eligibility for the ERTC. However, small and large businesses are treated differently based on the year.
According to Smith, “2019 is used as the base year to determine if businesses are large or small, but it is different for both years.”
2020: If businesses had a monthly average of 100 or more full-time W2 employees, they would be considered a large employer.
2021: If businesses had a monthly average of 500 or more full-time W2 employees, they would be considered a large employers.
More confusion surrounds whether employees are full time or full time equivalent.
“FTE or Full-Time equivalent does not matter for this calculation, only full-time employees – which is calculated by working more than 30 hours in a week, or 130 hours in a month,” said Smith.
The determination of large or small employers comes into effect when determining which wages can be claimed for ERTC. Small businesses reap big rewards for the purposes of this credit, because all wages during the eligibility period can be claimed for ERTC. If you are a large employer, it is more than likely going to diminish the significance of the credit, because you can only claim the wages of employees directly affected.
“For example, companies would only be able to claim wages of employees that they were paying while they weren’t working or able to perform their jobs. Most places didn’t continue paying their employees (if they did, not for very long) if they weren’t working,” said Smith.
In summary, small employers can claim all wages, and large employers can claim wages of workers that were getting paid but not providing services or working.
(For more information, visit irs.gov for a table for “Percent of Qualified Wages Eligible for Credit”)
“If Congress continues to be focused on aiding employers through incentive programs, it will be important for employers to monitor the programs that can potentially benefit them,” Johnson said.
It is also important to note that the faster businesses file for the credit, the faster they will receive their funds.
For more guidance on this, plus how Clarus Solutions can help your business claim this credit right away, we would love to talk to you!
About Clarus Solutions
Clarus Solutions transforms cash flow for businesses through employment tax credit opportunities. Founded by tax experts, Clarus believes in the power of tax credits for improving business finances and built its cloud-based platform to help more businesses unlock the full value of federal and state incentive programs.
Backed by technology and unparalleled client service, Clarus collaborates with companies to help them understand their qualifications and delivers actionable insights for leveraging programs that impact hiring decisions and fundamentally improve the economics of their business.