Employee Retention Tax Credit  

Amending prior year returns can net big cash savings for eligible employers

The employee retention tax credit (ERTC) was one of the more well-known COVID-19 tax incentives during 2020 and 2021. The ERTC was a refundable tax credit taken against the employer’s portion of payroll taxes during 2020 and most of 2021. 

And while it was a valuable way for many businesses to recoup cash during the pandemic, ERTC rules changed so much that it was hard to keep up. There were different rules for total qualifying wages, the amount of the credit, percentage drop in gross receipts, total employee count, and whether ERTC could be taken at the same time as PPP. 

Many businesses that could have qualified didn’t claim ERTC because they were unsure of the shifting requirements. 

Even though ERTC can only be claimed through the third quarter of 2021 for most businesses, employers can still amend prior year returns if they’re entitled to the credit. 

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ERTC Recovery Startup Provision

New businesses may have been able to claim ERTC for the full year in 2021, even if other employers couldn’t. To qualify for the ERTC Recovery Startup Provision, the business must: 

  • have started on or after February 15, 2020, 
  • have $1 million or less in gross receipts, 
  • not otherwise be eligible because there was no full or partial closure or decline in gross receipts. 

Under the provision, qualified businesses may claim up to $50,000 per quarter in 2021 for all employees. New businesses that received other COVID-19 funding such as the Restaurant Revitalization Fund or Shuttered Venue Operators Grant may not qualify. There are other considerations; check with your Adams Brown advisor for more information. 

ERTC in 2020 and 2021

When the CARES Act introduced ERTC in March 2020, it limited use of the tax credit. The Consolidated Appropriations Act later expanded ERTC, and the American Rescue Plan Act implemented even more changes. These are the basic requirements for each iteration of ERTC. 

50%

3/12/20 – 12/31/20: 50% of eligible wages up to $5,000 per employee annually and 50% decline in gross receipts per quarter

70%

1/1/21 – 9/30/21: 70% of eligible wages up to $21,000 per employee annually and 20% decline in gross receipts per quarter

Feb. 15

7/1/21 – 12/31/21: New businesses that began operations after 2/15/20 were eligible for the Recovery Startup Provision