December 1, 2023

How To Apply For The Employee Retention Tax Credit

The employee retention tax credit has become a popular option for businesses looking to reduce their payroll costs. This program provides employers with an incentive in the form of a refundable tax credit that can be applied against their federal employment taxes. In this article, we’ll provide an overview of how to apply for the employee retention tax credit and the requirements you need to meet in order to qualify.

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First off, it’s important to note that only certain businesses are eligible for the employee retention tax credit. To qualify, your business must have been affected by COVID-19 either through full or partial closure due to governmental orders, or a significant decline in gross receipts compared to 2019 levels. Additionally, if you’ve received a loan under the Paycheck Protection Program (PPP) then you won’t be able to claim this tax credit.

Finally, there are several steps involved when applying for the employee retention tax credit. You’ll need to gather all relevant documents such as payroll records and bank statements from 2019 and 2020 so you can calculate both your gross receipts and wages paid during those periods. Once everything is ready, you can file Form 941-X in order to claim your credits on quarterly basis up until December 2021.

In conclusion, understanding how to apply for the employee retention tax credit is key if you want get back some money from Uncle Sam!

Overview Of ERTC

The Employee Retention Tax Credit (ERTC) is a tax credit available to employers who continue to pay employees’ wages and provide healthcare benefits during periods of economic hardship. It was established by the CARES Act in 2020 as an incentive for businesses to retain their workforce, helping employers offset some of the costs associated with keeping employees on payroll during these trying times. The ERTC provides eligible employers with refundable tax credits equal to 50% of qualified wages paid after March 12th, 2020 and before January 1st, 2021; up to $5,000 per employee. Employers are also allowed additional credits related to health plan expenses incurred between those same dates. Additionally, certain non-profits may be eligible for more generous credits than what is generally available under the ERTC program.

In order to qualify for ERTC, employers must have experienced either a full or partial suspension in operations due to orders from governmental authorities limiting commerce, travel or group meetings due to COVID-19; or suffered at least a 20% decline in gross receipts when compared with the same quarter in 2019. If an employer meets this criteria they can claim the credit on Form 941 with no limit on how many quarters it’s claimed over nor any specific time period that it must be used within. Self-employed individuals may also qualify for similar relief through various unemployment compensation programs put into place by Congress and administered through state governments.

When deciding whether or not one should take advantage of ERTC there are several important considerations that must be taken into account such as current cash flow needs, number of employees employed throughout the year, amount of qualified wages paid out ,and other financial obligations which could potentially impact eligibility requirements . Ultimately each business will have unique circumstances so consulting with a professional accountant familiar with ERTC provisions would be advised prior to making any decision regarding taking advantage of this benefit.

Eligibility Requirements

The Employee Retention Tax Credit (ERTC) is available to certain businesses and tax-exempt organizations that have been affected by the coronavirus pandemic. The ERTC provides employers a credit against employment taxes equal to 50% of qualified wages up to $10,000 per employee for 2020. To be eligible, an employer must meet certain criteria which are outlined below.

First, employers must demonstrate that their business has either partially or fully suspended operations due to governmental orders related to COVID 19 or experienced a significant decline in gross receipts during any quarter in 2020 compared with the same quarter in 2019. Businesses can show this through quarterly comparisons of annualized gross receipts from 2019 versus 2020. If demonstrating suspension of operations due to government orders, evidence will need to include copies of applicable executive orders or other documentation from local authorities that support the claim.

Second, qualifying wages paid after March 12th, 2020 and before January 1st 2021 may be used as part of the calculation if they are not already being claimed under another provision like Paid Sick Leave Credits or Family Medical Leave Act credits. Qualifying wages are generally defined as those paid for time spent performing services including health insurance premiums but exclude amounts received through the CARES act such as those granted under extended unemployment benefits programs.

Lastly, employers should also note that there are phase out provisions based on number of employees so it’s important to calculate both current and pre-pandemic headcounts when determining eligibility. Employers should also consider consulting with their CPA prior to submitting an application as there may be additional factors affecting qualification status based upon specific circumstances surrounding each individual business entity.

Calculation Of Credit Amounts

The Employee Retention Tax Credit (ERTC) is a financial incentive for employers to keep their employees on the payroll, even during times of economic hardship. This credit can be claimed by employers that have lost revenue due to COVID-19 and meet certain eligibility requirements. But before claiming the ERTC, it’s important to understand how much you may be able to claim.

To calculate the amount of your ERTC, start by determining your eligible wages for each quarter in 2020. Eligible wages are limited to $10,000 per employee per quarter, so if an employee was paid more than this amount, then only $10,000 should be included when calculating the total eligible wages for that quarter. Additionally, there are two different types of credits available; one based on regular wages and another based on health care costs incurred in providing coverage under a group health plan. To determine which type applies best to your situation, consult with a qualified tax advisor or visit for additional guidance.

Keep in mind that the maximum amount of credit an employer can claim is 50% of eligible wages up to $5,000 per employee per quarter plus 100% of any healthcare costs incurred between March 13th and December 31st of 2020. Furthermore, the total allowable credit limit is equal to $28,000 per employee over all four quarters ($7K x 4). Once you’ve determined both your eligible wages and applicable credit rate(s), use these figures as input into Form 941-X: Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund (available from and follow its instructions closely. After completing Form 941-X with supporting documentation such as Forms 940 & W2s attached , submit it along with payment vouchers via mail or electronically through IRS e-file services .

Now that you know how much you may qualify for in terms of the ERTC program, take some time to review other resources available at so that you don’t miss out on any potential savings opportunities!

Record-Keeping Requirements

When applying for the Employee Retention Tax Credit (ERTC), employers must maintain records that demonstrate their eligibility. Those who qualify should keep track of all relevant documentation, including payroll and other expenses, to support their claims. It’s important to be accurate and thorough in order to maximize credit opportunities.

Employers claiming the ERTC need to retain evidence that shows how much they paid employees during the period when their operations were fully or partially suspended due to COVID-19 restrictions. This could include pay stubs, tax forms, bank statements, or any other documents reflecting wages paid out by business owners. Additionally, businesses may want to keep a record of payments made under qualified health plans such as medical insurance premiums or contributions toward employee retirement savings accounts like 401(k)s.

It is also necessary to have proof of reductions in gross receipts compared to 2019’s figures. Such information can come from sales invoices, purchase orders, accounting reports, etc., which will help ensure compliance with the program requirements and successful access of these funds when filing taxes. Keeping organized records throughout this process is essential: it will make it easier for employers to claim credits on future tax returns while avoiding potential penalties down the road.

Claiming The Ertc

Claiming the Employee Retention Tax Credit (ERTC) is a fairly straightforward process, but it’s important to understand all of the rules and regulations. To begin with, you must meet certain criteria in order to be eligible for the ERTC. You must have had an operating business during 2020 that was affected by government-mandated closures due to COVID-19 or experienced a significant decline in gross receipts compared to the same quarter in 2019. Additionally, employers who received Paycheck Protection Program funds are not eligible for the ERTC.

In order to claim your credit, you’ll need to fill out Form 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund and attach it with Schedule R – Credit for Sick Leave and Family Leave Paid Pursuant to Families First Coronavirus Response Act. The form has fields where employers can report their qualified wages as well as any other relevant information regarding the calculation of their credit amount. Once complete, simply submit the form along with other necessary documents such as payroll tax returns.

The IRS encourages taxpayers to keep detailed records of their expenses related to claiming this credit; these may include employee wage statements and evidence of how much sick leave benefits were paid out under FFCRA. It’s also important to remember that employer credits cannot exceed available taxes owed at time of filing; if there are no taxes due then there will be nothing left after taking into consideration potential refundable credits like Earned Income Tax Credits or additional Child Tax Credits from previous years’ filings.

Alternative Payroll Tax Credit Considerations

Having discussed how to apply for the Employee Retention Tax Credit (ERTC), it is important to consider some alternative payroll tax credit considerations as well. Payroll taxes are a necessary part of running a business, and understanding these additional options can help businesses maximize their savings while helping employees remain employed.

One such option is the FICA Alternative Payment Plan. This plan allows employers to pay certain qualified employee wages on an after-tax basis instead of withholding federal income taxes from those wages. The employer then pays both the employer’s share and its employee’s share of Social Security and Medicare taxes directly to the IRS without taking any deductions or credits for them. This can be beneficial in reducing payroll costs, especially when cash flow may be tight during difficult economic times like now.

Another possible solution is Employment Incentive Programs that allow employers to receive a tax break for hiring new employees or retaining existing ones by providing them with incentives such as bonuses or wage increases. Employers must meet specific criteria including having no layoffs between March 13th 2020 and December 31st 2021; making sure all eligible workers get at least $1,000 per year; not replacing laid-off workers who previously earned more than $2 million annually; and ensuring that the incentive was provided before January 1st 2022. These programs provide businesses with financial relief while enabling them to keep their staff employed amid challenging economic circumstances which has been greatly needed throughout this pandemic period so far.

Businesses have several alternatives available when it comes to receiving payroll tax credits and should look into each one carefully in order to determine which would work best for their financial situation and needs. Consulting an experienced accountant or CPA can also provide valuable insight into what potential solutions may be available as well as helpful advice about how best to take advantage of whatever credits are offered in order to optimize saving opportunities for your business.

Consultation With Professional Tax Advisors

It is highly recommended to consult a professional tax advisor prior to applying for the employee retention tax credit. Tax advisors have extensive knowledge of the current federal and state laws concerning taxes, as well as which forms must be completed and filed for various types of credits. Furthermore, they will also help you understand what documentation is required in order to verify your eligibility for the credit. In addition, they can advise on how to maximize the benefits of this program by providing additional guidance regarding other potential deductions or credits that may apply.

Moreover, it’s important to note that if an individual has been affected by COVID-19, then their filing status may need to be modified in order to receive the full benefit of any available tax credits and deductions. Professional tax advisors are able to provide advice on all aspects associated with such modifications so that taxpayers can take advantage of every opportunity available under these challenging economic times.

Taxpayers should also keep in mind that some states offer specific incentives related to the employee retention tax credit; therefore, consulting with a professional who specializes in both federal and state taxation is essential in order to ensure compliance with all applicable regulations. By doing so, businesses can increase their chances of receiving maximum benefits from this program while staying within legal boundaries.


The Employee Retention Tax Credit (ERTC) is a valuable tool for employers to reduce their payroll tax liabilities. It requires careful consideration, however, as there are eligibility requirements and record-keeping requirements that must be met in order to claim the credit.

It’s important for employers to consult with professional tax advisors when considering claiming the ERTC or other payroll tax credits. Your advisor can help you understand which credits may best benefit your business and how to go about properly claiming the credits available. This will ensure that you have all of the relevant information necessary when filing taxes in order to maximize any potential savings from taking advantage of these types of credits.

In conclusion, understanding how to apply for the employee retention tax credit is an important step for businesses looking to save on their payroll taxes. Although it takes some effort to research eligibility requirements and calculate potential credit amounts, doing so could result in considerable financial savings over time. With proper planning and consultation with a qualified professional, employers can take full advantage of this useful program.