What Booksellers Need to Know About the Employee Retention Tax Credit

**Updated March 17, 2021**

Originally authorized by the CARES Act in 2020, the Employee Retention Tax Credit (ERTC) was extended and expanded in the recent federal relief bills to, among other things, allow businesses that received a Paycheck Protection Program (PPP) loan to qualify for the credit. Below is the key information booksellers need to know about the credit. 

If you think your business is eligible for the 2020 and/or 2021 ERTC, speak to your payroll provider and accountant as soon as possible.

What is the Employee Retention Tax Credit (ERTC)?

The Employee Retention Tax Credit encourages businesses to keep employees on payroll during the pandemic. Qualifying businesses that experienced hardship due to COVID-19 can receive a refundable tax credit for certain wages paid to employees. The most recent relief bill extended the credit through December 31, 2021.

Does my store qualify for the ERTC?

Businesses are generally eligible for the credit if one of two criteria apply: (1) the business was fully or partially suspended due to a government order, or (2) the business experienced a decline in gross receipts of more than 20 percent (previously 50 percent) year-over-year for the same quarter.

Starting July 1, 2021, start-up businesses established after February 15, 2020, with annual gross receipts of up to $1 million will also be able to claim the credit.

Businesses that received a Paycheck Protection Program (PPP) loan are now eligible to claim the ERTC so long as the funds are not used to cover the same payroll costs. (You cannot claim the ERTC on wages paid with PPP money.) The same is true for wages paid with the Families First Coronavirus Response Act (FFCRA) tax credit for paid sick and family leave. (You cannot claim the ERTC on wages paid with FFCRA money.)

For specific questions about your eligibility, contact your payroll provider and/or accountant.

How much is the ERTC?

Just as eligibility requirements recently changed, so too has the amount of the tax credit.

For wages paid between March 12, 2020, and January 1, 2021, the credit is 50 percent of qualified wages up to $10,000 for the year (a max of $5,000 per employee).

For wages paid between January 1, 2021, and January 1, 2022, the credit is 70 percent of qualified wages up to $10,000 per quarter (a max of $28,000 per employee). Eligible start-up businesses, starting July 1, 2021, can receive a maximum of $50,000 per quarter. 

What are qualified wages?

Qualified wages for businesses with 500 or fewer full-time employees (previously 100 or fewer) are wages paid to employees regardless of whether the employees were working (furloughed and working employees’ wages all count).

Qualified wages for businesses with more than 500 full-time employees (previously more than 100) are wages paid to employees who are not working.

Starting July 1, 2021, qualified wages for “severely financially distressed” businesses, defined as businesses that experienced a decline in gross receipts of more than 90 percent compared to the same quarter in 2019, are all wages paid to employees (working or not working) regardless of the number of full-time employees.

Wages can include employer-provided group health plan expenses. For specific questions about qualifying wages, contact your payroll provider and/or accountant.

How do I claim the ERTC?

Businesses can claim the credit against their share of payroll taxes. Since the credit is refundable, if the credit exceeds the business’ payroll tax liability, the difference is refunded to the business.

Businesses can report wages for each quarter on their employment tax returns using Form 941. Businesses whose employment tax deposits do not cover the credit can claim a payment in advance from the IRS using Form 7200.

If you think your business is eligible for the 2020 and/or 2021 ERTC, speak to your payroll provider and accountant as soon as possible.

(Note: The IRS website is not yet updated to reflect the most recent relief bill. Check back here as more updates are posted.)

Still confused about the ERTC? Watch this short video explainer.