Taxes

Are you taking advantage of this small business tax credit?

  • 3 min Read
  • April 14, 2022

Author

Escalon

Table of Contents

There is less than a week until April 18, the IRS tax deadline for most small businesses, and many small business owners aren’t even aware of the employee retention tax credit lest taking advantage of it.

The ERTC was first created by the Coronavirus Aid, Relief, and Economic Security Act in March 2020 to provide financial relief to businesses whose operations were impacted by the COVID-19 pandemic. It has since been amended, extended, expanded, limited and most recently retroactively ended by the Infrastructure Investment and Jobs Act.  However, qualified small businesses can still claim this credit on their 2021 tax returns.


Here’s what you need to know about the ERTC as you rush to file your 2021 tax returns.


The basics



What’s ERTC? It’s a fully refundable tax credit available to employers as a percentage of the qualified wages paid to employees in 2020/21 during the COVID-19 pandemic.


What’s the eligibility? The IRS outlines three ways to qualify for the ERTC:



• Full or partial suspension of business operations during 2020 or 2021.


• Significant decline in gross receipts — 20% or more decline in revenue during 2021; 50% or more decline in 2020.


• Recovery startup businesses that started operations after February 15, 2020, with average gross receipts of $1 million or less.



What counts as qualified wages? Generally, qualified wages under ERTC are compensation paid to employees, including qualified health care costs. However, the definition of qualified wages also depends on the number of full-time employees an eligible employer had during 2019.


Businesses that weren’t in existence in 2019 should use the average number of full-time employees in 2020.


How does it work? This credit is now available to affected businesses at an increased rate of $7,000 per employee per quarter. However, with the latest infrastructure bill, ERTC is now limited to the third quarter of 2021, so any wages paid after Sept. 30, 2021, are ineligible for the credit. That means the maximum credit available now per employee is $21,000 for the calendar year.


Impact of other credit and relief provisions on ERTC



The federal government came up with a number of programs and credits to support businesses recover financially from the pandemic-induced downturn. But mostly they can’t be clubbed together to avail more benefits. 


Here’s how ERTC is impacted by other credit and relief provisions offered:



• If you received a loan under Paycheck Protection Program, you may now be eligible for the ERTC too. If your application for loan forgiveness was approved, you cannot claim this credit for wages you paid with your PPP loan. However, in case your forgiveness request isn’t granted, you can use wages paid with your PPP loan to claim the ERTC.



• Though you can claim both the ERTC and the tax credit for providing paid leaves to your employees due to COVID-19, you cannot do so for the same wages. Besides, you can’t include the paid leave wages in your calculation of qualified wages for the ERTC, treat them separately.



• Wages counted for ERTC can’t be counted for the credit for Section 45S paid family and medical leave.



• If you are allowed a Work Opportunity Tax Credit, the employees won’t be counted for the ERTC.


How to claim ERTC in 2022



To claim the ERTC, you need to report the total qualified wages and the related health insurance costs for each quarter on your quarterly employment tax returns, which will be Form 941 (for most employers). For filing ERTC retroactively for the past quarters, you can use Form 941-X.


For any additional information on ERTC, you can explore the FAQ page of the IRS.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Leadership & Growth

How to Build Leadership Pipelines to Sustain Growth 

Growth often hinges on capable leadership at every level. Yet many medium-sized businesses focus on filling immediate management vacancies rather...

Read More
uncategorized

How to Avoid Operational Bottlenecks When Scaling Beyond $10M ARR 

Reaching $10 million in Annual Recurring Revenue (ARR) is a major milestone, but scaling further brings new operational hurdles. From...

Read More
Press Releases

Escalon Achieves SOC 2 Type II Compliance

April 30, 2025– Escalon Services, a leading provider of back-office solutions for startups and SMBs, proudly announces that it has...

Read More
People Management & HR

From 25 to 100 Employees: The HR Systems You Need to Stay Compliant

Moving from 25 employees to 100 is a tipping point for many businesses. What worked with a lean, close-knit team...

Read More
uncategorized

Compensation Strategies for Medium-Sized Businesses: How to Stay Competitive

Compensation isn’t just about paying people to show up and do work; it’s a strategic tool that can attract top...

Read More
Accounting & Finance

Common Accounting Mistakes That Cost Medium-Sized Businesses Millions 

Accurate accounting is the bedrock of any successful business operation. Yet, medium-sized businesses—those that have grown beyond the small-business stage...

Read More
Taxes

1099 vs. W-2: How to Ensure Compliance and Reduce Risk 

Distinguishing between independent contractors (1099) and employees (W-2) is a pivotal compliance matter for U.S. businesses. Misclassification can result in...

Read More
Accounting & Finance

Capital Raising in Spring: How to Position Your Startup for Investor Interest

Spring symbolizes renewal, making it an apt metaphor for startups aiming to secure fresh capital to fuel their next growth...

Read More
uncategorized

Spring Clean Your Payroll: Essential HR Best Practices for Scaling Startups

Payroll is more than just issuing paychecks—it’s a complex, high-stakes process that can significantly impact employee satisfaction, legal compliance, and...

Read More