Employee Retention Credit is a newly introduced tax credit for employers for the cost of qualified wages paid to employees and the health plan costs. An employer can claim up to $10,000 for each employee with the Employee Retention Credit.
The credit applies to qualified wages and certain health plan costs expenses between March 12, 2020 and January 1, 2021. To claim the Employee Retention Credit, the business must have undergone certain events due to COVID-19. Here are the things that may qualify your business for the Employee Retention Credit.
- The business partially or fully suspended operations due to COVID-19 during any time of the year (2020).
- The business experienced a significant decline in gross receipts. If the business got less than 50 percent of its gross receipts for the same calendar quarter in 2019, making the business eligible for the Employee Retention Credit.
Claim Employee Retention Credit
So how to claim the Employee Retention Credit? To claim the Employee Retention Credit, you must’ve reported the qualified wages and the health plan costs starting from the second quarter using 2020 Form 941, Employer’s Quarterly Federal Tax Return.
If you didn’t know about this credit and didn’t figure out the qualified wages for the Employee Retention Credit, fill out Form 7200 with your 2020 tax return in 2021.
Note that the credit cuts down the employment taxes – for example, Social Security taxes. With the Employee Retention Credit, employers can keep the unemployment taxes that otherwise would’ve been collected such as the federal income tax withholding and FICA taxes (Social Security and Medicare).