The Employee Retention Tax Credit (ERTC) for 2021 can be seen as a life preserver for businesses battling the turbulent seas of the pandemic. This substantial financial aid can mean the difference between survival and failure for many businesses, so it’s important to understand how to take advantage of it. Let’s get started.
Essential Points
- The 2021 ERTC provides a credit of up to $7,000 per employee per quarter.
- Businesses that saw a drop in gross receipts or were impacted by government orders may be eligible.
- To figure out your credit, you need to find out eligible wages and related health plan expenses.
- Intuit Online includes a Tax Credit Estimator to make the ERTC calculation process easier.
- Claiming the ERTC requires specific forms and documentation for IRS compliance.
What Is the Employee Retention Tax Credit?
The Employee Retention Tax Credit, often referred to as ERTC or ERC, is a refundable tax credit intended to incentivize businesses to keep employees on their payroll. The best part about this credit is that it’s not a loan; it’s a full credit against employment taxes owed, which means more cash in hand for your business.
Eligibility Requirements for 2021
There are a few things you need to consider to see if you’re eligible for the ERTC in 2021. Did your business have a considerable decrease in gross receipts? Or did a government order fully or partially suspend your operations? If you answered yes to either of these, you’re on the right track. Let’s look at this in more detail:
- If your company’s gross receipts in a given calendar quarter are less than 80% of the gross receipts in the same quarter in 2019, you may be eligible for ERTC.
- If government orders significantly impacted your business operations, you may be eligible for ERTC.
It’s important to remember that ERTC eligibility is determined on a quarter-by-quarter basis. This means that even if you don’t qualify for one quarter, you may still qualify for another.
How to Determine Your ERTC
There are a few steps involved in figuring out your ERTC. First, you’ll need to find the total qualified wages, including certain health costs, that you paid to each employee. The limit is $10,000 per employee each quarter. Next, you’ll apply the credit rate — in 2021, it’s a whopping 70%. So, if you paid an employee $10,000 in qualified wages, your credit would be $7,000 for that quarter. It’s like getting a 70% off coupon for certain payroll expenses!
But fear not, you don’t have to tackle these calculations by yourself. Resources such as Intuit Online’s Tax Credit Estimator can greatly simplify this process.
Understanding the 2021 ERTC Guide
Now that we have covered the basics, let’s delve into the details of the 2021 ERTC to make sure you’re not missing out on any potential savings.
Decoding the 2021 Tax Alterations
The American Rescue Plan Act of 2021 introduced several important modifications to the ERTC, broadening its reach and duration. The most notable change was the extension of the credit to include the first three quarters of 2021, as well as the increase in the per-employee credit limit. The goal of these changes was to offer more robust support to businesses during the current economic rebound.
Steering Your Company Through the ERTC Maze
Knowing about the ERTC is one thing, but using it is another. You must make sure your company’s payroll records are correct and that you’re applying the credit properly. This is when the question changes from “Am I eligible for the ERTC?” to “How can I use the ERTC effectively?”
Let’s simplify this:
“In 2020, the Employee Retention Credit was calculated as 50% of the wages paid to an employee in a calendar quarter. In 2021, this percentage has been raised to 70%. This could result in a credit of up to $7,000 per employee for each quarter.”
As such, the ERTC could be a significant sum, and you’ll want to make sure you claim every dollar you’re eligible for.
Understanding Full and Partial Shutdown Scenarios
Let’s now look at what is considered a full or partial shutdown. It’s not as simple as closing the doors and switching off the lights. It’s about determining whether government orders significantly affected your business operations. A full shutdown is easy to understand—it means your operations had to completely stop. A partial shutdown could be a decrease in business hours or a substantial limitation on your operations, such as a restaurant being limited to only offering takeout.
How to Calculate Your ERTC: A Simple Guide
Calculating your ERTC can seem intimidating, but it doesn’t have to be. Keep in mind, you’re primarily looking at two things: qualified wages and associated health plan expenses. These are the costs that are eligible for the credit. Also, don’t forget about the $10,000 limit on the qualified wages per employee per quarter. That’s the number you need to remember.
Defining Qualified Wages and Health Expenses
Qualified wages are the wages you’ve paid to an employee when they’re not working due to your business’s full or partial shutdown, or a significant decrease in gross receipts. But it’s more than just the base salary or hourly wages. You also have to take into account the health plan expenses you’ve covered for your employees. These expenses can greatly increase the amount you’re eligible to claim.
For instance, consider you have an employee named Alex, who made $9,000 in eligible wages in the second quarter of 2021, and you also paid $1,000 for Alex’s health plan expenses. This totals to $10,000 in eligible wages and expenses, which could potentially result in an ERTC of $7,000 for that quarter.
It’s vital to understand which wages are eligible and the related expenses. This knowledge will ensure you claim what you’re entitled to and not miss out on any money.
But don’t panic if it all seems too much. This is where resources such as Intuit Online can be invaluable, making everything easier and ensuring you’re getting the most out of your claim.
Before we delve into that, let’s understand how much you can actually claim.
How Much Can You Claim? Breaking Down the Numbers
Let’s break it down: for each employee, the maximum amount of qualified wages you can consider for the credit is $10,000 per quarter. Multiply that by the 70% credit rate for 2021, and you get a maximum of $7,000 credit per employee, per quarter. If you have ten employees, that could mean up to $70,000 in credits for just one quarter!
Intuit Online’s ERTC: Making Tax Credits Easy
Intuit Online’s Tax Credit Estimator is a lifesaver for businesses. It makes the ERTC calculation process a breeze by walking you through every step. All you have to do is provide the required information, and it takes care of the rest, determining the credit you qualify for. It’s like having a tax professional on your side, but without the high cost.
So, how does Intuit Online assist you in navigating this process? Let’s delve into the details.
For instance, let’s say Sarah owns a small boutique that had to partially close in 2021. By using Intuit Online’s Tax Credit Estimator, she was able to quickly figure out that her business qualified for a substantial ERTC, which helped her cover the costs of keeping her employees during a difficult period.
Intuit Online offers a platform that is easy to use and makes sure that you’re taking into account all the correct variables when calculating your ERTC.
How to Use Intuit Online for ERTC: A Step-By-Step Guide
First, you’ll need to gather all your payroll data, including wages and health plan expenses. Then, you’ll enter all this data into the Estimator. The tool will use this information to calculate your credit, taking into account the current tax laws and guidelines.
Once you’ve worked out your projected credit, Intuit Online can help you claim it on your tax return. Simply follow their step-by-step instructions to remove any uncertainty.
Using Intuit Online to Get the Most Out of Your Tax Credit
Intuit Online is a powerful tool that can help you identify and maximize your ERTC claim. It takes into account all the complexities of the tax credit, including how it interacts with other relief options such as PPP loans, to ensure you’re getting the maximum benefit from your claim.
Boosting Your Claims with Professional Perspectives
Despite the usefulness of resources such as Intuit Online, professional perspectives are irreplaceable. As a daily practitioner in this field, I can confirm that a deep knowledge of the ERTC’s complexities can greatly impact your claim.
Here are some important things to remember:
- Stay informed about the most recent changes in tax laws.
- Make sure your payroll data is correct before you calculate your ERTC.
- If you’re in a complicated situation, you might want to get professional advice.
Next, we’ll discuss some common mistakes and how to avoid them.
Mistakes to Avoid When Claiming ERTC
Claiming the ERTC can be a bit complicated, and there are several common mistakes you should try to avoid. One big mistake is not understanding how the ERTC and PPP loans interact. If you’ve claimed PPP loan forgiveness, you can’t claim ERTC for the same wage payments. This doesn’t mean you can’t claim both—it just means you need to plan carefully and keep good records to get the most out of both benefits.
Another common mistake is not keeping detailed records. The IRS will expect you to have thorough documentation of wages and health plan expenses for the ERTC. So make sure you keep everything well-organized and easy to access.
Imagine this: A restaurant owner applied for ERTC for wages paid to employees during a partial shutdown. Unfortunately, they did not maintain detailed records of the shutdown period and health plan payments. When they were audited, they had difficulty providing the required documentation, which resulted in a stressful and lengthy process.
Don’t let this happen to you. Maintain a clear and detailed paper trail from the beginning. This will not only make the application process smoother, but it will also protect you if you are audited.
How to Stay Compliant and Avoid Audit Pitfalls
The most important aspect of ERTC compliance is keeping detailed records. It is crucial to keep track of how you determined your eligibility, how you calculated the credit, and which wages you used. You also need to document any government orders that affected your operations and how they impacted your business.
When you’re claiming the ERTC, it’s crucial to use the appropriate forms. For 2021, you’ll mostly use Form 941, the Employer’s Quarterly Federal Tax Return. If you’re amending previous returns, you’ll use Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
Rest assured, by adhering to these guidelines, you’ll be able to traverse the ERTC terrain, optimize your tax credits, and ensure your business continues to flourish. And don’t forget, if you’re ever uncertain, it’s always a good idea to consult with an expert or use dependable resources such as Intuit Online to help you navigate the process.
What to Do After You’ve Claimed Your ERTC
Once you’ve claimed your Employee Retention Tax Credit, you can start putting that money to work. The ERTC isn’t just a safety net—it’s a launch pad to help your business bounce back better than ever.
First and foremost, these resources should be wisely plowed back into your business. Whether it’s broadening your business activities, putting money into advertising, or simply keeping your cash flow steady, every penny should be contributing to the future prosperity of your enterprise.
How to Use Your ERTC Savings
After you’ve secured your ERTC, you’ll probably have a significant amount of savings. This provides a great chance to put money back into your business and strategize for the future.
Here are some clever ways to make the most of your ERTC savings:
- Refill any reserves that were used during the pandemic to strengthen your business against future unpredictability.
- Invest in new technology or equipment that can enhance efficiency or create new sources of income.
- Think about growing your team or offering more training to current employees to improve productivity.
- Pay off any high-interest debt that might be burdening your business finances.
- Try new marketing strategies to attract more customers and expand your brand’s reach.
In addition, it’s a good time to think about the lessons learned during the pandemic and how your business can be more resilient. The ERTC savings can assist you in making these changes.
Looking Forward: Tax Planning for the Next Year
Given the extra cash from the ERTC, it’s time to think about your tax plan for the next year. Take a step back and think about how the credit will impact your total tax situation. It might be a good idea to speak with a tax expert who can give tailored advice based on the unique circumstances of your business.
FAQs
Here are answers to some questions you may have about the 2021 ERTC.
What are the changes to the ERTC in 2021?
The ERTC saw a number of improvements in 2021. The credit percentage was raised from 50% to 70% of qualified wages, and the limit on wages per employee was increased to $10,000 per quarter (up from $10,000 for the entire year of 2020). In addition, eligibility was expanded to include more businesses, and certain restrictions on recipients of PPP loans were removed.
Is it possible to claim ERTC even if I’ve already gotten PPP loans?
Indeed, it is. At first, businesses had to pick between PPP loans and ERTC. But, with the recent changes, you can take advantage of both programs as long as the same wages aren’t utilized for both PPP loan forgiveness and the ERTC.
However, keep in mind that the interaction between these programs can be complicated, so it’s essential to keep detailed records and possibly seek advice from a tax expert.
How can I tell if my business qualifies for ERTC?
You can figure out if you’re eligible by looking at your business’s drop in revenue or if you’ve had a full or partial shutdown because of government orders. You can use the comparison of your quarterly gross receipts to the same quarter in 2019 as a standard or consider if government mandates impacted your operations.
What paperwork is necessary for the ERTC claim?
To claim the ERTC, you should have payroll records, health plan expense reports, and documentation of any government orders that affected your business. If you’re eligible based on a decline in gross receipts, you should also have those records.
Is it possible to claim ERTC if my business didn’t suffer a substantial drop in revenue?
Even if your business didn’t suffer a substantial drop in revenue, if government orders resulted in a full or partial suspension of your business operations, you may still be eligible for the ERTC.
When is the last day to claim the 2021 ERTC?
The 2021 ERTC can be claimed on your quarterly employment tax returns. If you want to claim the credit retroactively, you have until April 15, 2025, to file an amended return for 2021 credits. It’s always better to act quickly to ensure you receive your credit promptly.
Wrapping up, the 2021 ERTC is a potent motivator for companies to keep their employees amidst these difficult times. By grasping the modifications, figuring out eligibility, and precisely computing your credit, you can optimize the benefits for your company. And with resources such as Intuit Online and expert advice, the procedure can be significantly more straightforward. So, invest the time to educate yourself more and guarantee you’re not missing out on any funds.