EMPLOYEE RETENTION TAX CREDIT
The Employee Retention Tax Credit (ERTC) is a refundable credit that businesses can claim on qualified wages, including certain health insurance costs, paid to employees. Qualified employers can claim a credit against:
- 50% of qualified wages paid, up to $10,000 per employee annually for wages paid between March 13 and Dec. 31, 2020
- 70% of qualified wages paid, up to $10,000 per employee per quarter for wages paid in the first three quarters of 2021
PLUS, “Recovery Startup Businesses” could be eligible to claim a credit of up to $50,000 for the third and fourth quarters of 2021.
ERTC Eligibility
Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 or 2021 and experience either:
- The full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
- A significant decline in gross receipts.
To be considered a Recovery Startup Business, one must:
- Have begun carrying on trade or business after February 15, 2020;
- Have annual gross receipts that do not exceed $1 million; and
- Not be eligible for the ERTC under the other two categories, partial/full suspension of operations or decline in gross receipts.
Recommended Actions
If you already work with a payroll provider: Contact your current payroll provider for guidance.
If you do not work with a payroll provider:
- EDC SBDC Financial Advisors can provide guidance with the ERTC, including reviewing the program and potential eligibility with small businesses. Call the EDC Business Assistance Line at 805.409.9159 to get started.
- Contact a payroll service such as: Paychex or ADP for guidance.
This document is intended to be used as a starting point to help business owners understand the Employee Retention Tax Credit. It is not comprehensive. While everything this article is intended to be accurate it is not intended legal advice and should not be relied on as such. To obtain legal advice please contact a licensed California attorney.
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