Employee Retention Tax Credit Information
How to Claim the Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) can greatly help businesses that suffered revenue reductions from COVID-19.
In March 2020, Congress created the Employee Retention Tax Credit (ERTC) as a way to provide small businesses with financial relief during the pandemic. Since that time, the ERTC has been expanded twice so more struggling companies can use it to cut down their federal tax bill.
Eligible employers can claim the ERTC retroactively by filing Form 941-X for each quarter they paid qualifying wages. They can file this form up to three years after the original payroll taxes were due. This means that employers can claim the 2020 ERTC until April 15, 2024, and the 2021 ERTC until April 15, 2025. Here’s what you need to know about the ERTC and how to take advantage of it.
What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit (ERTC) is a credit that provides tax relief for companies that lost revenue in 2020 and 2021 due to COVID-19. The ERTC was designed to incentivize businesses of all sizes to keep employees on their payrolls during this period of economic hardship. Eligible companies can receive as much as $7,000 per employee per quarter for the first three quarters in 2021, which equals $21,000 per employee potentially coming back to your company. They might also qualify for a break of $5,000 per employee for all of 2020.
The ERTC has changed over time, so it can be a little confusing to track where things stand today. When the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March 2020, it included the ERTC as an option for financial relief for businesses. But companies could only take a forgivable Paycheck Protection Program (PPP) loan or the ERTC in the original bill, which meant only a handful of them actually could use the credit.
Congress then amended the ERTC in December 2020 in the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), and then in March 2021 in the American Rescue Plan Act (ARPA), so more companies could take advantage of the credit. If you meet the eligibility criteria for the ERC tax credit, you can still claim it within a certain time frame. The claim period allows for up to three years after filing your tax return or up to two years after making the payment, whichever occurs later.