The Ultimate Guide to ERTC: A Step-by-Step Handbook for Local Business Owners
- Author David James
- Published May 12, 2023
- Word count 4,514
This is an invaluable resource for business owners who want to learn more about Employee Retention Tax Credit.
Brief overview of the Employee Retention Tax Credit
The purpose of the guide and its target audience
- The Basics of the Employee Retention Tax Credit
What is the Employee Retention Tax Credit?
Historical context and the role of the ERTC during the pandemic
Key terms and definitions related to the ERTC
- Understanding Eligibility Criteria
Employer eligibility requirements
Qualified wages and eligible employees
Partial or full suspension of operations due to government orders
Significant decline in gross receipts
- Calculating the Employee Retention Tax Credit
Step-by-step guide to calculating the ERTC
Examples of common scenarios
Limitations on credit amounts and interaction with other credits
- Claiming the Employee Retention Tax Credit
How to claim the ERTC on your tax return
Amending previous tax returns to claim the ERTC
Reconciling the ERTC with other payroll tax credits
- Maintaining Proper Documentation
Recordkeeping requirements for the ERTC
Best practices for organizing and storing documents
Examples of documentation needed to substantiate the credit
- Navigating Changes to the ERTC
Overview of legislative updates to the ERTC
How these changes impact eligibility and credit calculations
Adapting to new guidelines and requirements
- Frequently Asked Questions
Common questions and misconceptions about the ERTC
Detailed answers and explanations
Summary of the key takeaways from the guide
The importance of the ERTC for local business owners * Encouragement to seek professional advice as needed
- An Effortless Solution
- Almost totally DFY ERTC Application Process
Chapter 1: Introduction
Hello there, fellow entrepreneur!
If you're reading this, chances are you've heard about the Employee Retention Tax Credit (ERTC) and want to learn more about how it can benefit your business. Well, you're in the right place! This comprehensive guide is specifically designed for local business owners like yourself who may not have extensive experience with tax laws but still want to take full advantage of the ERTC.
So, why should you care about the ERTC? In a nutshell, the ERTC is a refundable tax credit designed to help businesses like yours keep employees on payroll during the challenging times brought on by the COVID-19 pandemic. It's a powerful tool that can potentially save you thousands of dollars in payroll taxes.
But, as you may have already discovered, tax laws and credits can be incredibly complex and confusing. That's where this guide comes in. Our goal is to walk you through the entire ERTC process in a step-by-step, easy-to-understand manner. By the time you finish reading, you'll have all the knowledge you need to determine your eligibility, calculate the credit, and maintain proper documentation.
Here's a quick overview of what you can expect to learn in this guide:
The basics of the Employee Retention Tax Credit, including key terms and definitions
How to determine if your business is eligible for the ERTC
The process for calculating the credit and understanding its limitations
How to claim the ERTC on your tax return and potentially amend previous returns
The importance of maintaining proper documentation to support your ERTC claim
Navigating changes to the ERTC and staying up-to-date with new guidelines
We've designed this guide with you in mind, using a conversational tone and straightforward language to make the information as accessible as possible. So, grab a cup of coffee, find a comfortable spot, and let's dive into the world of Employee Retention Tax Credit together. Your business's financial future might just thank you for it!
Now, let's get started by exploring the basics of the ERTC in Chapter 2.
Chapter 2: The Basics of the Employee Retention Tax Credit.
Welcome back! Now that we've set the stage with our introduction, it's time to dive into the nuts and bolts of the Employee Retention Tax Credit. This chapter will provide a solid foundation for understanding the ERTC and its key components. By the end, you'll have a clear grasp of what the ERTC is and why it matters to local businesses like yours.
So, what exactly is the Employee Retention Tax Credit?
In response to the COVID-19 pandemic, the U.S. Government enacted the ERTC to help businesses keep their employees on payroll during these challenging times. It's a refundable tax credit that allows you to reduce your payroll tax liability by up to 50% of qualifying wages paid to eligible employees.
To put it simply, the ERTC is like a financial incentive for keeping your employees on board, even when your business might be struggling due to the pandemic's effects. Pretty cool, right?
Now, let's look at some key terms and definitions related to the ERTC that you should be familiar with:
Refundable tax credit: This means that if the ERTC exceeds your payroll tax liability, you can receive the difference as a refund from the IRS. In other words, the ERTC can put cash back in your pocket!
Qualifying wages: These are wages and compensation paid to eligible employees during specific periods of the pandemic. The definition of qualifying wages can vary depending on your business's circumstances, which we'll cover in more detail later.
Eligible employees: Generally speaking, these are full-time employees who worked for your business during the pandemic. However, there are specific rules and exceptions that determine which employees qualify for the ERTC, which we'll also explore in-depth later in the guide.
Payroll tax liability: This refers to the taxes you're responsible for paying as an employer, including Social Security and Medicare taxes on employee wages. The ERTC directly reduces this liability, helping you save on payroll expenses.
Now that we've covered the basics, it's important to remember that the ERTC is not a one-size-fits-all solution. The rules and calculations can vary depending on factors like the size of your business, the number of employees, and the specific time period in which you're claiming the credit.
But don't worry – we'll guide you through all of that in the upcoming chapters. So, stay tuned, and let's continue our journey toward mastering the Employee Retention Tax Credit together!
In the next chapter, we'll dive into the eligibility criteria for the ERTC, helping you determine if your business qualifies for this valuable tax credit.
Chapter 3: Understanding Eligibility Criteria
Welcome back, friend! Now that you have a solid understanding of the Employee Retention Credit's basics, let's move on to one of the most crucial aspects of the ERTC process: determining if your business is eligible for the credit. In this chapter, we'll break down the eligibility criteria so you can confidently assess whether you qualify for this financial lifeline.
First things first, let's talk about the three primary ways a business can become eligible for the ERTC:
Your business experienced a full or partial suspension of operations due to a government order related to COVID-19.
Your business experienced a significant decline in gross receipts during a calendar quarter.
Your business has experienced Supply chain disruptions that caused delays in goods or services essential to the operation of your business. This is often overlooked!
Let's dive a bit deeper into each of these eligibility paths.
- Full or Partial Suspension of Operations.
A full or partial suspension means your business operations were scaled back or completely halted due to a government order. Examples of government orders include stay-at-home mandates, social distancing regulations, or capacity restrictions. If your business was directly impacted by such an order, you could be eligible for the ERTC. It's important to note that the suspension must be due to a government order – a voluntary decision to reduce operations doesn't count for eligibility purposes.
- Significant Decline in Gross Receipts
A significant decline in gross receipts occurs when your business's gross receipts for a calendar quarter have dropped by at least 50% compared to the same quarter in the previous year. Once your gross receipts recover to 80% of what they were in the same quarter of the previous year, you're no longer eligible for the ERTC under this criterion.
- Supply chain disruptions
If an employer's supply chain has been disrupted due to COVID-19 pandemic, and any Government imposed restrictions and this has resulted in a significant decline in gross receipts, they may be eligible for the ERTC. This includes disruptions to the supply of goods or services that are necessary for the employer's operations. This is significant.
Now that we've covered the main eligibility criteria, let's touch on a couple of other factors that come into play:
Qualified wages and eligible employees: As we mentioned earlier, the ERTC applies to specific wages paid to eligible employees. Generally, full-time employees who worked during the pandemic qualify, but there are specific rules and exceptions we'll explore later on.
Size of your business: The number of employees you have can impact the definition of qualifying wages. For businesses with more than 3, but fewer than 100 employees (later increased to 500 or fewer in 2021), all wages paid to employees during the eligibility period can be considered qualifying wages. However, for larger businesses, only wages paid to employees who were not working due to the pandemic are considered qualifying wages.
The good news is that there are unlimited numbers of part-time workers who can qualify. This is great news for hotels, bars, and restaurants as well as other industries that rely a lot on part-time workers.
Unfortunately family members do not usually qualify.
Phew! That's a lot of information to digest, but we're confident that you're now well-equipped to determine if your business is eligible for the Employee Retention Credit.
Keep up the great work, and let's continue our journey toward ERTC mastery!
In the next chapter, we'll dive into the exciting world of calculating the ERTC, ensuring you have the tools you need to maximize your credit and save on payroll expenses.
Chapter 4: Calculating the Employee Retention Tax Credit
Hey there! You've made it to Chapter 4, and we're so proud of the progress you've made so far. With a firm grasp of the ERTC basics and eligibility criteria, it's time to tackle the next big challenge: calculating the Employee Retention Credit.
In this chapter, we'll break down the calculation process step by step, making it as easy as pie for you to determine the credit amount you can claim.
Before we dive in, remember that the ERTC is calculated as a percentage of qualifying wages paid to eligible employees. For the purposes of this guide, we'll focus on the 50% credit rate that was in effect for most of 2020. (Later legislation increased the credit rate, but we'll keep things simple for now.)
Ready to crunch some numbers? Here's a step-by-step guide to calculating the Employee Retention Credit:
Identify the Eligibility Period: Determine the time frame in which your business was either fully or partially suspended due to a government order or experienced a significant decline in gross receipts.
Calculate Qualifying Wages: Identify the wages paid to eligible employees during the eligibility period. Remember that the definition of qualifying wages may vary based on your business size, as we discussed in the previous chapter.
Apply the Credit Rate: Multiply the total qualifying wages by the credit rate (50%) to determine the amount of the ERTC.
Factor in Wage Caps: There's a limit on the dollar amount of wages that can be considered for the credit per employee. In 2020, the cap was set at $10,000 per employee for the entire year. If any employee's qualifying wages exceed the cap, you'll need to adjust your calculations accordingly.
Let's look at an example to help illustrate the calculation process:
Imagine you own a small restaurant with ten employees, and your business was partially suspended due to a government order for three months. During this time, you paid each employee $4,000 in wages. Here's how you'd calculate the ERTC:
Eligibility Period: 3 months of partial suspension.
Qualifying Wages: $4,000 per employee x 10 employees = $40,000 in total wages.
Apply the Credit Rate: $40,000 x 50% = $20,000
- Factor in Wage Caps: In this case, no employee's wages exceeded the $10,000 cap, so no adjustments are needed.
Voilà! Your calculated Employee Retention Tax Credit would be $20,000.
Keep in mind that this is a simplified example, and real-world scenarios might involve additional factors or complexities. However, this step-by-step process should give you a solid starting point for calculating the ERTC for your business.
In the next chapter, we'll explore how to claim the Employee Retention Credit on your tax return, ensuring you get the credit you deserve. You're doing an amazing job so far – let's keep going and conquer the ERTC together!
Chapter 5: Claiming the Employee Retention Tax Credit
Hi there! We're so impressed with how far you've come in your ERTC journey. You've learned the basics, determined eligibility, and even calculated the credit amount. Now, it's time to reap the rewards and claim the Employee Retention Tax Credit on your tax return. In this chapter, we'll walk you through the process of claiming the ERTC, ensuring that you can confidently reduce your payroll tax liability and potentially receive a refund from the IRS.
Ready to put all that hard work to good use? Let's dive into the process of claiming the Employee Retention Credit:
Reporting the ERTC on Your Tax Return: To claim the ERTC, you'll need to report the credit on your quarterly federal tax return, specifically Form 941 (Employer's Quarterly Federal Tax Return). There's a dedicated line on the form where you can report the credit, reducing your total payroll tax liability.
Reducing Payroll Tax Deposits: If you're anticipating claiming the ERTC, you can reduce the amount of payroll tax deposits you make during the quarter. This allows you to keep more cash in your business right away, rather than waiting for a refund from the IRS.
Requesting an Advance on the ERTC: If the ERTC exceeds your payroll tax liability, you can request an advance on the credit by filing Form 7200 (Advance Payment of Employer Credits Due to COVID-19). This allows you to receive the difference as a refund, putting cash back in your pocket.
Amending Previous Tax Returns: Did you discover that you were eligible for the ERTC after already filing your tax returns? No worries! You can still claim the credit by filing an amended return using Form 941-X (Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund). This allows you to retroactively claim the ERTC and potentially receive a refund for overpaid payroll taxes. Once you file a Form 941-X you cannot file another one if you discover that you didn’t claim all your entitlements. Triple-check with us before you file a Form 941-X just to make sure you don’t lose out big time.
And that's it! By following these steps, you can claim the Employee Retention Tax Credit and benefit from the financial relief it offers. Keep in mind that, as with any tax-related process, it's essential to maintain accurate records and documentation to support your claim, which we'll cover in the next chapter.
You've come a long way, and the finish line is in sight. Keep up the fantastic work – you're almost there!
In the upcoming chapters, we'll cover maintaining proper documentation and navigating changes to the ERTC, ensuring that you're fully prepared to take advantage of this valuable tax credit.
Chapter 6: Maintaining Proper Documentation
Hey there, ERTC champion! You're doing an amazing job navigating the world of Employee Retention Credit. Now that you've learned how to claim credit, it's essential to ensure you have proper documentation in place to support your claim. In this chapter, we'll discuss the types of records you should maintain and why they're crucial to the ERTC process.
Having proper documentation is like having an insurance policy for your ERTC claim. It helps you verify your eligibility, demonstrate compliance with the rules, and defend your claim in case of an audit. So, what exactly do you need to keep on file?
Let's take a look:
Payroll Records: Maintain detailed payroll records for all eligible employees, including wage amounts, hours worked, and any paid leave. These records will help you substantiate the qualifying wages used in your ERTC calculations.
Government Orders: Keep copies of any government orders that led to the full or partial suspension of your business operations. These documents provide evidence that your business was directly impacted by the pandemic, supporting your eligibility for the credit.
Gross Receipts: Retain records of your gross receipts for each calendar quarter, demonstrating the decline in revenue that qualifies you for the ERTC. This documentation may include sales reports, invoices, or financial statements.
Business Size: Keep records that establish your business size, such as employee headcounts or payroll reports. Remember that the number of employees you have can impact the definition of qualifying wages, so it's essential to have this information readily available.
ERTC Calculations: Document the process you used to calculate the Employee Retention Credit, including the eligibility period, qualifying wages, and credit rate. This information will be helpful if you ever need to explain or defend your calculations.
Tax Forms: Lastly, keep copies of any tax forms related to your ERTC claim, such as Form 941, Form 7200, or Form 941-X. These forms serve as an official record of your claim and any amendments you may have filed.
By maintaining these records, you'll be well-prepared in case the IRS ever questions your ERTC claim. It's always better to be safe than sorry, especially when it comes to taxes!
You're doing a fantastic job mastering the Employee Retention Credit, and we're almost at the finish line. Keep up the excellent work – the end is in sight!
In the next chapter, we'll cover navigating changes to the ERTC and staying up-to-date with new guidelines, ensuring that you're always in the know when it comes to this valuable tax credit.
Chapter 7: Navigating Changes to the ERTC
Hello again, ERTC expert! You've made incredible progress so far, and we're delighted to have you here for the final chapter of our journey. The Employee Retention Tax Credit has evolved since its inception, with legislative changes and updates along the way. In this chapter, we'll discuss how to stay informed about these changes and adapt your ERTC strategy accordingly.
Tax laws can be a moving target, so it's essential to stay on top of any updates that could impact your eligibility or credit amount. Here are some tips for navigating changes to the ERTC:
Follow IRS Announcements: The IRS is the primary source of information when it comes to tax-related updates. Keep an eye on the IRS website and subscribe to their e-newsletter to receive announcements about any changes to the ERTC or other relevant tax credits.
Consult Professional Advice: Tax professionals, such as accountants or tax attorneys, can be invaluable resources when it comes to staying informed about changes to tax laws. They can help you interpret new regulations, assess their impact on your business, and adjust your ERTC strategy as needed.
Participate in Industry Groups: Joining industry associations or networking groups can be a great way to stay in the loop about changes to tax laws that could affect your business. These groups often share information about new legislation and provide resources to help members navigate any changes.
Monitor Legislative Updates: Keep an eye on federal and state legislative updates related to COVID-19 relief measures. By monitoring the news and staying informed about proposed changes, you'll be better prepared to adapt your ERTC strategy if and when new regulations are enacted.
Reevaluate Your ERTC Eligibility: As new guidance or rules emerge, take the time to reevaluate your ERTC eligibility and credit amount. This may involve revisiting your calculations, reassessing your eligibility period, or updating your payroll records to ensure they align with any new requirements.
Adapt Your Record-Keeping Practices: Changes to the ERTC may require you to maintain additional documentation or update your existing records. Stay informed about any new record-keeping requirements and adjust your practices accordingly.
By staying proactive and informed, you'll be well-equipped to navigate any changes to the Employee Retention Tax Credit and ensure your business continues to benefit from this valuable tax relief measure.
Congratulations on making it to the end of our ERTC journey! You've become a true expert in the Employee Retention Credit, and we're confident that you're ready to tackle this tax credit head-on. Remember to stay informed, maintain proper documentation, and consult professional advice when needed. With these tools in your arsenal, you're well on your way to maximizing the benefits of the ERTC for your business. Best of luck, and here's to your continued success!
Chapter 8: Frequently Asked Questions
Hello again, ERTC superstar! By now, you've gained a wealth of knowledge about Employee Retention Credit. However, we understand that you might still have some questions or concerns. In this bonus chapter, we'll address some frequently asked questions about the ERTC to help clarify any lingering doubts. Let's dive in!
- Q: Can I claim the ERTC if I also received a Paycheck Protection Program (PPP) loan?
A: Yes, you can claim the ERTC even if you received a PPP loan. However, you cannot use the same wages for both the ERTC and PPP loan forgiveness. It's essential to carefully track and allocate wages for each program separately to avoid any double-dipping.
- Q: Can I claim the ERTC for wages paid to family members who work for my business?
A: Generally, wages paid to certain related individuals (e.g., children, spouses, or siblings) are not eligible for the ERTC. There are specific rules regarding family members, so it's a good idea to consult a tax professional to determine the eligibility of wages paid to relatives.
- Q: How long do I need to keep records related to the ERTC?
A: It's recommended to keep your ERTC records for at least four years from the date you filed your tax return. This timeframe aligns with the IRS's general record retention guidelines and ensures you have the necessary documentation if you ever face an audit or need to reference the information in the future.
- Q: Are part-time employees eligible for the ERTC?
A: Yes, part-time employees are eligible for the ERTC, and their wages can be included in your calculations. Remember to follow the same eligibility criteria and wage limitations as you would for full-time employees.
- Q: Can I claim the ERTC if I didn't experience a government-mandated shutdown but still saw a decline in revenue?
A: Absolutely! If your business experienced a significant decline in gross receipts (usually a 50% reduction compared to the same quarter in the previous year), you may still qualify for the ERTC, even if you were not directly impacted by a government order.
We hope these FAQs have addressed any lingering questions or concerns you may have about the Employee Retention Credit.
Remember, the information provided in this guide is meant to serve as a starting point, and it's always a good idea to consult a tax professional for personalized advice.
Congratulations on completing this guide and becoming well-versed in the world of the ERTC! With your newfound knowledge, you're well-equipped to take advantage of this valuable tax credit and support your business during these challenging times. Best of luck, and we wish you continued success!
Chapter 9: Conclusion
And there you have it, our ERTC hero! You've made it through this comprehensive guide, and we couldn't be prouder of your dedication and progress. You've tackled the basics of the Employee Retention Credit, navigated eligibility criteria, mastered calculations, claimed the credit, maintained proper documentation, and adapted to changes like a true champion. Now, you're well-equipped to maximize the benefits of the ERTC and help your business thrive during these challenging times.
Throughout this journey, we've aimed to make the complex world of Employee Retention Tax Credit more approachable and understandable. As a local business owner, you're the backbone of our community, and it's our honor to support you in any way we can.
Remember, even though you've now become an ERTC expert, it's crucial to stay up-to-date with any changes or updates to tax laws and regulations. Don't hesitate to consult tax professionals or seek guidance from reliable sources whenever necessary. You're not in this alone, and there's a whole community of experts and fellow business owners who are more than willing to help.
In conclusion, we want to express our gratitude for your hard work and commitment to learning about the Employee Retention Credit. We believe that, armed with this knowledge, you're better prepared to face the challenges that lie ahead and continue to lead your business to success. We're rooting for you, and we have no doubt that you'll make the most of the ERTC to support your employees and strengthen your business.
Chapter 10: An Effortless Solution
After perusing "The Ultimate Guide to ERTC: A Step-by-Step Handbook for Local Business Owners," you may now understand just how much effort goes into an ERTC application, even for a qualified CPA. But don't worry, we've got an effortless solution for you!
Simply answer two simple questions and fill out your contact information HERE, and one of our skilled ERTC CPAs will give you a call to determine your eligibility for a rebate.
Once we confirm your eligibility, our team of highly experienced CPAs will take care of the entire application process for you. You'll be asked to sign a customer service agreement and provide some essential documents. We'll keep you informed every step of the way. And to ensure your application is error-free, it will be reviewed not once, not twice, but THREE times by our CPAs.
Through the thousands of ERTC claims that have been processed we can show that we have achieved between 40% to 140% more for our clients than even the largest accounting firms can claim.
We DO NOT ask for any payment upfront. Once you sign a customer service agreement our expert ERTC CPAs work on your behalf until a credit has been agreed upon. Then we will offer you three payment options.
With no upfront payment then you’ll pay the full commission, leveed at 30% of the credit arranged. (Our fees are cheaper than most ERTC agencies or CPAs!)
A small upfront payment allows for a 5% reduction in fees.
Fee payment in full allows for a 12% reduction in fees.
Depending upon the time that you take in providing the requested documents and the payment plan agreed upon affects the time taken to process your claim. Be prompt in returning documents etc., for a faster result, but this process often takes at least 4 weeks
After all, who wants to be on the wrong side of the IRS, right? So, take the easy route with our hands-off ERTC application process:
Answer two straightforward questions and provide your contact details.
Chat with an expert ERTC CPA to determine if you qualify for a rebate.
Sign a Customer Service Agreement.
Submit the necessary documents promptly.
Once a credit has been negotiated and agreed only then will we discuss payment options.
Once payment has been received you’ll receive a check from the IRS.
Thank you for joining us on this journey, and we wish you all the best in your future endeavors. Keep shining, and remember that your determination and resilience make all the difference.
Here's to your continued success and the growth of your business!
David James Salvidge has been involved in marketing for more years than he cares to remember and has personally made all the mistakes he tells you not to.
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