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PPP Eligibility

ERTC Eligibility Checklist: Maximize Credits With & Without PPP

  • Get to know the basics of ERTC and how it can financially benefit your business
  • Find out how to determine if your business qualifies for ERTC
  • Learn how to calculate qualified wages and get the most out of your tax credits
  • Understand the documentation needed for a successful ERTC claim
  • Discover how to apply for ERTC and use it in conjunction with PPP loans

“Essential Laws for New Business Owners …” from www.waldenu.edu and used with no modifications.

Hello, business owners and financial gurus! If you’re looking for ways to improve your business’s financial standing, you’ve probably come across the Employee Retention Tax Credit (ERTC). It’s a powerful tool that can offer substantial tax savings. But, the big question is, how do you know if you qualify, and what steps do you need to take to claim it? Fasten your seatbelts, because we’re about to delve into the ERTC eligibility checklist, which will walk you through the process step by step.

Let’s Get Started

Before we dive in, let’s take a moment to understand what ERTC is. Essentially, it’s a refundable tax credit that’s available to employers. It’s intended to motivate businesses to retain employees during tough economic periods. And it can significantly impact your profit margin.

ERTC Simplified: A Financial Safety Net for Businesses

You might be asking yourself, “What’s the benefit for me?” The ERTC can assist you in reclaiming some of the wages you’ve paid to your workers. This is not just a tax deduction; it’s a credit, meaning it’s a one-to-one reduction in the tax you owe. And if the credit is larger than what you owe, you receive the difference in cash. Sounds like a good deal, doesn’t it?

What to Know When Combining ERTC and PPP

If you’ve used the Paycheck Protection Program (PPP), that’s fantastic! But, were you aware you could also claim ERTC? It’s true, you can. However, there’s a caveat. You can’t claim ERTC on wages paid with PPP loan funds that have been forgiven. But, wages not covered by PPP are eligible for ERTC. So, be careful about how you distribute those funds.

Let’s start with the basics of determining your eligibility for ERTC, and don’t worry, I’ll keep it simple and straight to the point.

Procedure

Determining your eligibility for the ERTC is akin to solving a jigsaw puzzle. You need all the pieces to complete the image. And I’m here to assist you in locating those pieces.

Spotting Eligible Decreases in Sales

One of the main elements for ERTC eligibility is your business’s revenue. You need to demonstrate that you’ve had a major reduction in sales compared to the same quarter in 2019. How much of a reduction? Usually, this means a 50% decrease in 2020 or a 20% decrease in 2021. However, these percentages may vary, so always refer to the most recent guidelines.

Let’s delve deeper into this:

  • Get your hands on your 2019 and 2020 or 2021 financial statements, depending on the quarter you are looking at.
  • Check out the gross receipts, which is the total sales you made, excluding returns and allowances.
  • If you notice the required percentage drop, you’ve completed one part of the ERTC puzzle.

Remember, even though these steps might seem overwhelming, they’re important for maximizing your credits and strengthening your business financially. So, take a deep breath, and let’s get through this together.

However, it’s not all about the money. Even if your sales haven’t taken a huge hit, your business could still qualify. Why? If your business was fully or partially shut down because of a government order related to COVID-19, you’re in.

Understand Full or Partial Suspension of Business Operations

Let’s dive into the specifics of operational suspension. You didn’t have to shut down your business entirely. Even if a part of your business was suspended — for example, a restaurant’s dine-in service — it’s considered. The crucial point is that the suspension was because of a government order, not a personal decision.

Here’s what you need to do:

  • Consider any government orders that have affected your business operations. These may be state, local, or federal mandates.
  • Record the specific ways these orders have affected your business. Did you have to limit hours? Did you have to offer takeout only? Did you have to temporarily stop providing certain services?
  • Maintain records of these orders and how they align with the periods you’re claiming the ERTC for.

Having a grasp on these details can make a big difference in your eligibility and the amount of the credit you can claim. For more information, refer to the Employee Retention Credit Eligibility Checklist provided by the IRS.

How to Determine Qualified Wages for the ERTC

Figuring out what counts as qualified wages can be a bit tricky, but it’s crucial in order to figure out how much credit you can get. The amount of wages that count towards the ERTC depends on how big your business is and how many employees you have.

Let’s break it down: For a more in-depth understanding, you can refer to the ERTC eligibility checklist for nonprofits.

  • If your business had 100 or fewer full-time employees in 2019, you can claim the credit for wages paid to all employees, regardless of whether they worked or not during the period of economic hardship.
  • If your business had more than 100 employees, you can only claim the credit for wages paid to employees for the time they were not providing services.
  • For 2021, the threshold increased to 500 employees, enabling more businesses to claim a larger credit.

However, keep in mind that the ERTC has evolved over time, and the rules can vary depending on the quarter you’re claiming for. Always check the current guidelines to ensure you’re calculating your qualified wages correctly.

“Paycheck Protection Program – How it …” from www.fundingcircle.com and used with no modifications.

Grasping the Relationship Between ERTC and PPP Loan Forgiveness

Previously, we discussed the Paycheck Protection Program (PPP). Recognizing how it corresponds with the ERTC is crucial because it involves a delicate equilibrium.

So, here’s the thing: understanding the Employee Retention Credit eligibility can be quite complex.

  • Wages used for PPP loan forgiveness cannot be used for the ERTC. You have to choose one.
  • However, if you paid wages that exceed what the PPP covers, you might be able to use those excess wages for the ERTC.
  • Maximizing both benefits requires strategic fund management and payroll reporting.

So, it’s important to plan carefully and keep good records. You have to make sure the wages you’re claiming for the ERTC weren’t used for PPP forgiveness. It’s like a financial jigsaw puzzle, where every piece has to fit just right.

Procedure

Now that you have all the elements, how do you assemble them? The procedure requires documentation, record-keeping, and some paperwork, but when you see the financial impact it can have on your business, it’s worth it.

Keeping Records and Documents for ERTC Claims

Keeping accurate records is essential for any ERTC claim. You will need to prove not only that you paid your employees, but that those payments are eligible for the credit. This requires maintaining detailed payroll records, which include:

  • Payroll tax submissions
  • Proof of wages disbursed
  • Time cards or other proof demonstrating the hours employees clocked in
  • Health insurance expenses, if you’re counting them in your qualified wages

And remember to have those government mandates or your revenue comparisons handy. You’ll need those as well.

Submitting Revised Employment Tax Returns to Claim Credits

Don’t worry if you’ve already filed your employment tax returns and then discovered that you qualify for the ERTC. You can file an amended return using Form 941-X to claim the credit. It’s a little more paperwork, but it’s the way to get the credit you’re entitled to.

Coordinating Your PPP Loan Forgiveness and ERTC Application

Ultimately, if you’re dealing with both PPP loan forgiveness and the ERTC, timing and strategy are crucial. You should only apply for PPP forgiveness after you’ve accurately calculated and maximized your eligible ERTC wages. This could involve selecting different payroll periods for each program to make sure you’re not duplicating the same wages.

For instance, assume you have $100,000 in payroll expenses for a quarter and received a $60,000 PPP loan. You can apply for forgiveness for the full amount of the PPP loan, but you can’t claim the ERTC for those wages. However, the remaining $40,000 in wages could be eligible for the ERTC. By strategically choosing which wages to attribute to each program, you can maximize your financial benefits.

At this point, you’re probably thinking, “This sounds promising, but it also sounds complex.” And you’re not wrong. But that’s why I’m here, to walk you through the process and ensure you’re not leaving money on the table that could help your business succeed.

Why Keeping Records for ERTC Claims is Important

Documentation might not be the most exciting part of running a business, but it is necessary, especially when it comes to the ERTC. You will need to provide proof of your eligibility and the amount of credit you are claiming, which means you need to keep excellent records. Think of it as the proof that backs up your claim in the eyes of the IRS.

These are the documents you need to hold onto: for a detailed overview, refer to our ERTC eligibility checklist for nonprofits.

  • Comprehensive payroll reports that detail the amount and date of each wage payment
  • Previously filed employment tax returns, such as Form 941
  • Documentation of any health plan expenses that were allocated to wages
  • Copies of any government orders that had an impact on your business operations
  • Evidence of any decreases in gross receipts

Having these documents in order will not only assist you in preparing your ERTC claim, but will also be extremely useful if the IRS has any inquiries in the future.

Claiming Credits Through Amended Employment Tax Returns

In case you discover your eligibility for ERTC after you’ve already filed your employment tax returns, you can still claim the credit by filing an amended return. This is facilitated through Form 941-X, otherwise known as the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. Although it may seem overwhelming, this step could potentially result in a significant refund for your business.

Here’s a fast rundown on what to do: check out our ERTC eligibility checklist for nonprofits for detailed steps.

  • Collect all the required paperwork that supports your claim, including the records mentioned earlier.
  • Fill out Form 941-X, making sure to follow the instructions closely to avoid any mistakes.
  • Send the form to the IRS, and keep a copy for your own records.

It’s important to be patient, as amended returns might take a little longer to process. However, the financial benefits make the wait worthwhile.

“What is Compliance and Five Ways to …” from legaltrunk.com and used with no modifications.

Coordinating Your PPP Loan Forgiveness and ERTC Application

Finally, we need to coordinate your PPP loan forgiveness with your ERTC application. This requires some careful maneuvering. You must ensure that you’re not claiming the ERTC for wages that have already been forgiven under the PPP, because that’s not allowed according to the IRS.

This is how you can make the two work together:

  • Firstly, apply for PPP loan forgiveness. Be meticulous in choosing the wages that will be forgiven.
  • Then, pinpoint any remaining wages that can be utilized for the ERTC.
  • Make sure the periods you’re claiming the ERTC for don’t coincide with the periods covered by the PPP loan forgiveness.

By doing this, you’ll be able to maximize the financial benefits available to your business while staying within the rules.

Before we conclude, it’s crucial to stress the need for initiative. The ERTC can provide your business with significant financial assistance, but it’s your responsibility to secure it. Check your records, establish your eligibility, and if you’re prepared to apply, don’t wait. The earlier you begin, the earlier you’ll start seeing the advantages.

Don’t worry if you’re feeling a bit lost with all the intricacies of the ERTC and PPP. You’re not the only one. Many businesses are finding it a challenge. But with the right planning, keeping accurate records, and a little patience, you can successfully manage it.

Get started today. Check your eligibility, collect your paperwork, and submit your ERTC application. This could be the key to stabilizing your business’s finances and getting the help you need in these tough times. Why not give your business the financial boost it needs?

The Employee Retention Tax Credit (ERTC) is a valuable tax relief option for businesses that have been impacted by the pandemic. Understanding the interplay between ERTC and the Paycheck Protection Program (PPP) loans is crucial for maximizing potential benefits. Businesses can take advantage of significant tax savings by meeting the specific criteria set by the IRS. For a detailed guide on navigating these options, including an ERTC eligibility checklist, business owners should consult with a tax professional or utilize resources designed to simplify the process.

Author

Mike Sweeney

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