Businesses cannot disburse salaries for claiming the Employee Retention Tax Credit (ERTC). However, they can view the salaries that were disbursed during the pandemic. Using this data, they can file an amended tax return to claim the credit. For this, the Government has decided to extend the timeline till 2024 or in some cases, 2025.
Qualification of Employers for the ERTC
Employers such as 501(C) organizations, hospitals, universities, and colleges that adhere to the implementation of the American Rescue Plan Act qualify for ERTC. Businesses that were partially or entirely suspended or had decreased business hours owing to Government orders were eligible. The credit is not applicable for the entire quarter but for the part of the quarter when the business was suspended.
Based on IRS guidance, the businesses that fall under the category of ‘Essential’ are not eligible unless their supply of critical material or goods is hampered to such an extent that their ability to operate is disrupted. Those businesses that have lowered their shutters but can continue a major part of their business utilizing telework are also not eligible for ERTC.
Considerable Drop in Gross Receipts
In August 2021, the IRS came out with Revenue Procedure 2021-33. Suppose an employer wanted to become eligible to claim the ERTC for this singular reason.
In that case, the employer could do the following: from the gross receipts, the employer can subtract the following amounts (a Restaurant Revitalization Fund grant, a Shuttered Venue Operators grant, the forgiveness of a PPP loan). However, this safe harbor must be consistent across all entities.
CARES Act 2020
If the gross receipts during a calendar quarter are less than half of the gross receipts in the same calendar quarter of 2019, the employer becomes eligible for ERTC. The employer does not qualify for this quarter if the next calendar quarter’s gross receipts are more than 80% of the same calendar quarter in 2019.
Consolidated Appropriations Act 2021
If, in 2021, a business is negatively affected due to quarantine or forced closure or witnesses more than a 20 percent decrease in the gross receipts compared with the same quarter in 2019, the employer qualified for ERTC. Suppose you have commenced a new business in 2020 and do not have any statistics for a calendar quarter in 2019. In that case, the gross receipts of the quarter when you began the business are considered a reference for the next quarters to decide eligibility.
If you want related information about the Employee Retention Act (ERA), you can read it at erctoday.com/7-important-faqs-the-employee-retention-act/. Businesses can conduct a retrospection to determine whether the salaries paid post-March 12, 2020, till the end of the ERTC qualify for the claim. The Government has finalized a timeline of April 15, 2024, for businesses to claim for the quarters Q2, Q3, and Q4 of 2020. There is a timeline until April 15, 2025, to make claims for all the quarters of 2021. In addition to the preceding, other governing laws have been created since the commencement of ERTC. If you have any questions, hire the experts from ERC Today. They have years of experience in tax consultation.