Introducing the Employee Retention Tax Credit (ERTC)
The Employee Retention Tax Credit (ERTC) is the United States' employee-focused tax credit intended to stimulate the economy. Initially available in the UK, the tax credit is designed to benefit businesses, nonprofits, and self-employed individuals currently facing economic hardship. The overall goal is to financially sustain companies struggling during the COVID-19 pandemic.
Who is Eligible for the ERTC Credit?
Eligible employers can receive the ERTC as a payroll tax credit towards Social Security tax withheld from employees' wages. To qualify for the ERTC in DC, employers must meet the following criteria:
- Have been carrying out business operations before their facilities were affected by government lockdown orders or prior to February 15, 2020
- Experienced either: 1] a full or partial suspension of their business due to a governmental order or 2] significant declines in gross receipts
- Employ and pay wages to employees during the applicable period
What Tax Relief is Available?
The amount of tax relief has been varied for employers and could decrease double-digit percentages (50% to 70%) of employee wages per month. According to the CARES Act, employers who experienced a 50% or greater revenue decline (relative to the same quarter in 2019) can claim 50% of the qualified wages paid from March 13, 2020, to December 31, 2020 (up to $10,000 per employee). The assistance is limited at $5,000 per employee for businesses experiencing a revenue decline of less than 50%.
Conclusion
For those who qualify, the ERTC provides employers with significant tax relief. This reduction can potentially save affected businesses from further financial hardship. Applying for the ERTC involves multiple steps and requires due diligence to ensure accuracy. It is suggested that businesses review applicable legislation and speak with a financial professional or tax expert when submitting their ERTC request.
