Many employers and employees have faced hard times over the past year. In an effort to provide businesses with relief, the government has offered a variety of government-funded loans and grants. Some of these assistance programs, like the Restaurant Revitalization Fund and the Paycheck Protection Program, have become well-known, but Maine businesses may be able to take advantage of other programs as well. One of them is the Employee Retention Tax Credit.

What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit (ERTC) was originally established within the CARES Act in March 2020. The objective of the credit was to encourage employers to keep their employees on payroll, despite the struggles of the pandemic. The Consolidated Appropriations Act and the recent American Rescue Plan Act have both extended the deadline and further expanded eligibility. The most recent version of the ERTC allows eligible businesses to claim the credit on qualified wages paid to employees, such as payroll and health insurance costs. Eligible Maine business owners can claim a credit against 70% of qualified wages paid to each employee, up to $10,000 per employee each quarter. If an employee earned $10,000 or more in wages per quarter, the employer would get a credit of $7,000, as that is 70% of $10,000. This means a maximum of $28,000 per employee can be credited to the employer in 2021. This tax credit is especially beneficial because it’s not a loan, and recipients will never need to repay or seek forgiveness for the credited funds.

Which employers qualify for the tax credit?
In order for a business to qualify for the tax credit, the employer’s operations need to have been fully or partially suspended due to a pandemic-related governmental order, or the employer needs to have experienced a significant decline in gross receipts (all of the money a business takes in, before deducting expenses and taxes) as a result of the pandemic. The American Rescue Plan Act determines a significant decline to be more than a 20% drop in quarterly gross receipts compared to that same quarter in 2019.

How do employers claim the tax credit?
Businesses do not need to fill out an application for the ERTC. Instead, employers claim the credit on their federal employment tax returns – usually on Form 941. The amount of the credit can reduce the required amount of an employer’s payroll tax deposits; if the credit is greater than the deposits, the extra will be refunded to the employer. A business that received a PPP loan can still claim the ERTC using Form 941-X, but only for qualified wages that didn’t count toward PPP loan forgiveness. Visit the Internal Revenue Service (IRS) website to confirm business eligibility and for instructions on how to file for ERTC. Employers should contact a tax professional to ensure compliance and to learn how to fully take advantage of the tax credit.