Employee Retention Credit
The employee retention credit is a federal stimulus program that can help businesses offset payroll taxes. This article will mention The employee retention credit, eligibility, and how to apply for it.
The employee retention credit is a federal stimulus program that can help businesses offset payroll taxes. This article will mention The employee retention credit, eligibility, and how to apply for it. Employee retention credit is a government tax credit that encourages businesses to keep their employees working. It was created under the CARES Act and is available to small business owners through 2021.
This credit is worth 70% of qualified wages and related health plan expenses an eligible employer pays. Qualified wages include FICA and non-FICA wages, including tips subject to FICA and over $20 per month. Eligible employers can claim this credit up to $26,000 for each employee still employed in 2021. Employers can also receive this credit if they received a Paycheck Protection Program (PPP) loan for the first time in 2020.
However, before the Consolidated Appropriations Act passed in December 2020, employers could not take out the PPP loan and claim the ERTC at the same time. The CAA changed that, allowing smaller businesses to take advantage of both opportunities as long as they meet eligibility requirements. In addition to being a great incentive to retain employees, the ERTC also helps offset any payroll taxes that are owed. This makes it a valuable tool for any business struggling to recover from the COVID-19 pandemic.
How to Qualify for ERC?
To qualify for the ERC, a business must be partially or fully non-operational because of the COVID-19 pandemic. In addition, a business must have retained its employees during the qualifying periods and have paid them at least $600 in qualifying wages. Once a business qualifies, it must report the amount of qualified wages on its federal employment tax return. This will help to calculate the amount of credit it is eligible to receive.
Currently, the credit equals 50% of up to $10,000 of qualifying wages that an eligible employer pays during any given quarter. Qualifying wages can be paid by an employer to one or more employees in any combination. For an eligible employer to claim the Employee Retention Credit, it must first file its Federal Employment Tax Returns for the relevant calendar quarters. Depending on the business size, it may also need to file an additional return for each employee on the payroll during that period.
It is important to note that the ERC credit can only be claimed against payroll taxes, not income taxes. This is because it is a refundable tax credit that can be used to offset the amounts of employment taxes due on an eligible employer’s federal income tax return for the year the credit was paid. In addition, if an eligible employer does not file its Federal Employment Tax Returns by the applicable deadlines for filing the tax return, they are subject to failure to deposit penalties. To avoid these penalties, an eligible employer should not reduce their federal employment tax deposits after December 20, 2021.
An employer must file Form 941-X with their quarterly federal tax return to claim the employee retention credit. This form is filed the month after each fiscal quarter. In addition to the credit, employers must also report the amount of any group health plan expenses they paid during that quarter as well as the total advance amounts from their Paycheck Protection Program loan. The ERC is an incredibly complex program, and navigating it on your own can be difficult. This is why we recommend working with an expert to ensure you are getting the most out of it for your business.