The Employee Retention Tax Credit (“ERTC”), originally part of the CARES Act and extended under the Relief Act of 2021 and the American Rescue Plan Act of 2021, is a refundable tax credit designed to encourage employers to have kept employees on their payroll during 2020 and 2021.

The ERTC is a refundable tax credit against the federal payroll taxes reported on Federal Form 941 and Form 941-X. Employers who have yet to claim the credit for 2020 or 2021 must file Form 941-X, an amended federal employment tax return, for each quarter they want to claim. In addition, employers who partner with a PEO must request that the PEO include their credits on the PEO’s subsequent aggregate Form 941-X filings.

For 2021, eligible employers are employers who experienced:

1. A full or partial suspension of operations in a calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
2. A significant decline in gross receipts in a calendar quarter, where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019.

For 2020, eligible employers are employers who experienced:

1. A full or partial suspension of operations in a calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
2. A significant decline in gross receipts in a calendar quarter, where the gross receipts of that calendar quarter are less than 50% of the gross receipts in the same calendar quarter in 2019.

For 2021, eligible employers may claim a refundable tax credit of 70% on up to $10,000 of wages per employee per quarter for Q1, Q2, and Q3 2021. In addition, recovery startup businesses may claim Q3 and Q4 2021.

For 2020, eligible employers may claim a refundable tax credit of 50% on up to $10,000 of wages per employee between March 13, 2020, and December 31, 2020.

For 2021, the definition of qualified wages is as follows:

• For an employer that averaged 500 or fewer full-time employees in 2019, qualified wages refer generally to wages paid to employees during a period operations were fully or partially suspended; or during the quarter in which the employer experienced a decline in gross receipts regardless of whether the employees are providing services.
• For an employer that averaged more than 500 full-time employees in 2019, qualified wages are generally those wages paid to employees not providing services because operations were fully or partially suspended, or due to the decline in gross receipts.

For 2020, the definition of qualified wages is as follows:

• For an employer that averaged 100 or fewer full-time employees in 2019, qualified wages are wages paid to employees providing services and not providing services because operations were fully or partially suspended, or due to the decline in gross receipts.
• For an employer that averaged 100 or more full-time employees in 2019, qualified wages are generally those wages paid to employees not providing services because operations were fully or partially suspended, or due to the decline in gross receipts.

A full comparison and overview of 2020 vs. 2021 ERTC requirements by the IRS is here.

Form 941-X is a paper-filed amended return. The IRS amendment process for paper returns has been subject to intense scrutiny and criticism due to delays in processing amended returns. Employers who submit a Form 941-X can expect the IRS review process to take anywhere from 6 to 12 months and maybe longer, depending on the IRS review process.

Employers who partner with a PEO must request that the PEO include their credits on the PEO’s subsequent aggregate Form 941-x filing. Prestige has submitted amended returns for ERTC-eligible quarters and is waiting on the IRS to process those returns. Clients who have not claimed the ERTC, but would like to, should reach out to their Payroll Specialist. Clients who provide the requested documentation and credit calculations will be included in the subsequent amendment.

Please get in touch with your payroll specialist if you are eligible to receive the ERTC or have any other questions.