Updated ERTC Broadens Tax Credit

January 26, 2022

The Employee Retention Tax Credit (ERTC) is an incentive originally created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) intended to encourage employers to keep employees on the payroll as they navigate the unprecedented effects of COVID-19. Eligible employers can get a refundable payroll tax credit equal to a percentage of eligible wages

When the ERTC program was originally launched in 2020, employers had the option to receive assistance either through ERTC or Paycheck Protection Program (PPP), but not both. That changed in 2021, with the passing of the Consolidated Appropriations Act, which allowed employers to benefit from both programs. The changes allowed business owners to claim tax credits even if they had already received a PPP loan.

The American Rescue Plan (ARP) further extended the ERTC to the end of 2021 (ending on September 30, 2021 with the passing of the Infrastructure Investment and Jobs Act). The Infrastructure and Investment Jobs Act made an additional change to the ERTC program. Wages paid after September 30, 2021, are no longer considered eligible wages for ERTC purposes.

Employers can claim up to 50 percent of the first $10,000 in wages paid to eligible employers in each quarter from March 1st to December 31st, 2020. In 2021 that amount was increased to 70 percent, allowing employers to claim up to $7,000 per employee, per quarter.

Business owners who have already filed for 2020 can still receive their tax credits by filing an amendment, using a 941-X form. Businesses have three years from the sunset of the program to claim the credit retroactively. 

The changes to eligibility requirements have opened the program to a wide range of businesses that were previously disqualified, and the benefits can now be claimed by startups, non-profits, and most businesses with less than 500 employees.

Unlike the PPP, the Employee Retention Tax Credit program is a one-time credit that does not need to be paid back.

To determine if you qualify, click here to read the IRS FAQ.