The Employee Retention Credit (ERC) is a valuable tax credit offered by the IRS to assist small businesses in retaining their employees during challenging economic conditions, such as those caused by the COVID-19 pandemic. While the ERC provides significant relief to eligible businesses, it’s important to understand how it interacts with state and local tax credits.
State and Local Tax Credits
Many states and localities have introduced their own tax credits and incentives to encourage businesses to retain their employees during the pandemic. For example, some states have introduced tax credits for businesses that retain a certain number of employees or maintain a certain level of payroll during the pandemic.
You might enjoy reading the ERC FAQ.
Interaction with the ERC
The interaction between the ERC and state and local tax credits varies depending on the specific credit or incentive. In general, businesses should carefully review the eligibility criteria and requirements of any state or local tax credits they are considering, as well as the interaction with the ERC, to ensure that they are maximizing their relief.
Here are some common scenarios and interactions to consider:
- Double Dipping: Businesses cannot “double dip” and claim both the ERC and a state or local tax credit for the same wages. If a business claims the ERC for certain wages, it cannot also claim a state or local tax credit for those same wages.
- Stackable Credits: Some state and local tax credits can be stacked with the ERC. In other words, a business can claim both the ERC and a state or local tax credit for different wages or different employees.
- Reduced ERC: Some state and local tax credits can reduce the amount of the ERC that a business can claim. For example, if a business claims a state tax credit for a certain amount of wages, the ERC for those wages may be reduced by the amount of the state tax credit.
- Timing: The timing of state and local tax credits can also impact the interaction with the ERC. For example, if a state tax credit is based on the number of employees retained at the end of the year, a business may need to wait until the end of the year to claim the state tax credit, while the ERC can be claimed on a quarterly basis.
Must look at the ERTC FAQ to better comprehend it!
Conclusion
State and local tax credits can provide valuable relief to businesses during the pandemic, but it’s important to understand how they interact with the ERC. Businesses should carefully review the eligibility criteria and requirements of any state or local tax credits they are considering, as well as the interaction with the ERC, to ensure that they are maximizing their relief.
