Congress originally enacted the employee retention tax credit in the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of 2020 to encourage employers to hire and retain employees during the pandemic. The credit is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees.
The Employee Retention Tax Credit (ERTC) was modified and extended by the American Rescue Plan Act, signed by President Biden on March 11, 2021. We would be happy to assist you in analyzing whether the modified and extended ERTC might benefit your business.
The Act extended and modified the employee retention tax credit to apply to wages paid after June 30, 2021, and before January 1, 2022. Thus, an eligible employer can deduct the refundable credit against certain employment taxes (subject to restrictions and limitations) equal to 70% of the qualified wages it pays to employees in the third and fourth quarters of 2021.
Employers who got a Payroll Protection Program (PPP) loan in 2020 can still claim the employee retention tax credit. But the same wages cannot be used both for seeking PPP loan forgiveness or satisfying conditions of other Covid-19 relief programs and in calculating the credit.
To claim the credit, you can file amended payroll tax returns or file Form 7200.