Employee Retention Tax Credit (ERTC), also called Employee Retention Credit (ERC), is a refundable credit that businesses may claim on qualified wages like health insurance costs paid to employees. Wondering if you are eligible for ERTC? A CPA in Houston, TX, can find out if you are eligible for it. Still, you should know about your eligibility for ERTC depending on the factors below:
1. A Business That Was Fully/Partially Suspended or With Reduced Active Hours Because of the Government Order
The credit is applied only to the suspended parts of your business. Businesses, dependent on IRS guidance usually don’t meet the factor test and won’t qualify. Closed businesses continuing operations significantly intact via telework. However, any business may qualify for the credits with the second-factor test.
2. An Employee With a Massive Decline in Gross Receipts
The IRS Revenue Procedure creates a solid environment where an employer may exclude PPP loan, Shuttered Venue Operators Grant/ Restaurant Revitalization Fund grant from the gross receipts only to determine eligibility to claim the ERTC. Employers should apply the safe harbor throughout all entities. Here are some changes in law and its effect on ERCTC.
CARES Act 2020
An employer qualifies for ERTC if gross receipts in a quarter are below 50% of gross receipts as compared to a similar calendar quarter in 2019. They won’t be eligible anymore if, in the calendar quarter following the quarter, the gross receipts cross 80% more than the similar calendar quarter in 2019.
Consolidated Appropriations Act, 2021
Forced closures/quarantines have impacted businesses. They have experienced a 20% reduction in gross receipts than the same quarter in 2019. The IRS permits the use of gross receipts for the quarter when you initiated business as a reference for a quarter in which they don’t have 2019 figures as you weren’t in business.
American Rescue Plan Act – 2021
Businesses can determine ERTC eligibility depending on gross receipts in the preceding calendar quarter rather than the 2019 corresponding quarter.
3. Recovery Startup Business
To qualify as a recovery startup business, you should have started trading/business post-February 15, 2020. You should have yearly gross receipts of less than $1 million. Infrastructure Investment and Jobs Act 2021 removes an eligibility condition. Recovery startups no longer get business closure/gross receipts reduction to qualify for ERTC. All RSBs are eligible in the 4th quarter.
So, now you have an idea about eligibility for ERTC. If you have any confusion, you can always hire a good CPA in Houston.