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Employee Retention Tax Credit: Who Qualifies?

Did your business experience dramatic financial change during the 2020 tax year because of COVID-19? Between lockdowns and heavy restrictions, many small businesses across the United States felt the financial impact of the pandemic. Luckily, you may qualify to submit an employee retention tax credit application under the CARES Act. The employee retention tax credit (ERTC) aims to help small businesses recover from the impact of COVID-19 between March 12, 2020 and January 1, 2021. Learn more below to see if your business may qualify.

Businesses Keeping Employees on Payroll During Lockdown

Small businesses that kept their employees on payroll during 2020 lockdowns from the COVID-19 pandemic can apply for the ERTC. Under the CARES Act, the government wants to reward small businesses who continued to pay their employees despite lockdown and heavy restrictions that either limited the amount of people in a single place or restricted the ability to visit certain public spaces.Every small business with under 100 employees can apply for the ERTC to receive a tax credit refund for qualified wages paid after March 12, 2020 and before January 1, 2021.  

Businesses with Significant Declines in Gross Receipts

For small businesses, COVID-19 lockdowns and restrictions caused a heavy impact on their sales. Restaurants were forced to shut down, minimize their maximum capacity, or could only accept takeout orders due to the pandemic. Movie theaters closed or could only operate at reduced capacity, event spaces and venues closed, and even hospitality and retail saw serious declines in customers.Businesses with significant declines in gross receipts from March 13, 2020 to December 31, 2021 are eligible to claim the ERTC.

ERC Limitations

Employers with a PPP loan forgiveness or certain other tax credits cannot claim the ERTC for those wages already reported in any qualifying tax period. The PPP loan, or paycheck protection program, allowed businesses with 500 employees or fewer to receive funds for payroll costs and pay interest on mortgage, utilities, and rent.

How to Apply for the ERTC

To apply for the ERTC, it’s best to hire an ERC consultant who specializes in handling these types of claims. The IRS has already warned of delays that businesses may face before they receive their claim. Waiting to relieve financial burden may not be the best option for your business.To receive your ERTC claim faster, an ERC consultant can work with you on the application and ensure you have the best chance at an approved claim. They can also work to get you in line with the IRS faster to receive your claim. That way, all you are waiting on is approval from the IRS.When applying for the ERTC, it is also important to make sure that you are filling out all of your application correctly. Inaccurate or incorrect information on your application could result in an audit from the IRS. You do not want to be stuck facing fines or penalties because of your application, especially when you are applying to ease your financial burden resulting from the pandemic.

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