The Skinny on ERTC: Employee Retention Tax Credit or Free Money?

Have you heard of the Employee Retention Tax Credit?

Essentially, if you had an active business during 2020 or 2021 and were affected by COVID-19 restrictions, you could qualify for the free money – err… a tax credit. Originally, this was designed to subsidize employers who did not lay off employees due to COVID-19 but kept paying them while there was no work. However, due to the overall economic downturn, it was expanded to include (for small businesses) any organization that suffered a revenue decline, regardless of COVID-19 safety orders.

‍Although Clearview has helped several clients receive millions of dollars by applying for the ERTC, we still see eligible businesses not taking advantage of the opportunity to benefit from this tax credit.

That was as simply as this credit could be explained.

So, now you are an expert in the ERTC, right? No?

Didn’t think so. Let’s dive deeper into an explanation.

Do you qualify for the ERTC?

Well, as with ALL questions related to taxation, the answer is “it depends.”

The Employee Retention Credit (ERTC or ERC) launched as part of the CARES Act in 2020. This credit was designed to give certain employers financial relief, through a refundable credit against employment taxes, as they navigated the complexities of running their business during the COVID-19 pandemic. There have been several modifications to the credit as circumstances evolve. However, the general idea was to give a tax credit to certain businesses for eligible wages paid between March 12, 2020, and September 30, 2021.

Determining a company’s eligibility for the ERTC is relatively straight-forward, but complicated, nonetheless.

Note there are two “tranches” of the credit: the 2020 version and the 2021 version. The credit for 2020 was more stringent and specific than its much broader counterpart in 2021. As mentioned above, the intent of this credit was to help employers keep employees employed (say that five times fast) during locally mandated business shutdowns when the COVID-19 pandemic was still new. It helped pay people who had no work due to the lack of revenues, as well as assisting small businesses in the same climate.

However, due to the ensuing economic downturn, the ERTC was greatly expanded via the Infrastructure Investment and Jobs Act in 2021.

It is really this 2021 version that is the “free money.”

2020 Eligibility

For 2020, eligible employers must show a 50% reduction in revenue during any quarter, compared to that same quarter of 2019.  If so, they can claim a credit of 50% of qualified wages paid in each qualifying quarter of 2020, up to $5,000 per employee for the year.

2021 Eligibility

For 2021, eligible employers must show only a 20% reduction in revenue in any of the first three quarters, compared to that same quarter of 2019.  If so, they can claim a credit up to 70% of qualified wages paid in Q1, Q2, and Q3 2021, with a maximum credit of $7,000 per employee, per quarter. Companies can also qualify if they were subject to a government mandated shutdown in either year, regardless of if it had a negative effect on income.

As you can see, this can lead to significant free money, err… a significant tax credit.

‍If any of these qualifications apply to your organization or you are unsure about your eligibility, contact Brian Haines to assess your qualifications for the ERTC.