10 keys to unlocking the Employee Retention Credit?
Finding and retaining qualified employees is one of the most important factors in the success of any business. With the introduction of the Employee Retention Credit (ERC) in 2020, employers are able to claim a tax credit for up to 50% of the wages paid to their employees during the COVID-19 pandemic. If you’re looking to take advantage of the ERC, this article is for you. Here we will look at 10 keys to unlocking the Employee Retention Credit and how to maximize your savings.
The Employee Retention Credit is a refundable tax credit for employers affected by COVID-19. Here are 10 keys to unlocking the Employee Retention Credit:
- Determine Eligibility: Check if your business has experienced a full or partial suspension of operations due to government orders or a significant decline in gross receipts.
- Choose Your Tax Year: Decide whether to claim the credit for the first two quarters of 2020 or for the final two quarters.
- Know Your Limitations: Employers with more than 500 full-time employees are not eligible for the Employee Retention Credit.
- Calculate Your Credit: Determine the amount of credit you are eligible for based on the number of employees and wages paid.
- Know the Rules: Understand the rules associated with claiming the Employee Retention Credit.
- Claim the Credit: Claim the credit on your 2020 Form 941, Employer’s Quarterly Federal Tax Return.
- Stay Up-to-Date: Be aware of any changes in the rules associated with the Employee Retention Credit.
- Be Patient: It can take several weeks for the IRS to process your Form 941.
- Take Advantage of Other Programs: If your business isn’t eligible for the Employee Retention Credit, consider other relief options.
- Consider Professional Advice: If you have any questions about the Employee Retention Credit, consult a tax professional.
10 Keys to Unlocking the Employee Retention Credit
The Employee Retention Credit is a great way for businesses to get some financial assistance during and after the COVID-19 pandemic. This credit can help businesses manage their payroll and keep their employees on the payroll for longer periods of time. Here are 10 keys to unlocking the Employee Retention Credit.
1. Understand Eligibility Requirements
Businesses must understand the eligibility requirements for the Employee Retention Credit in order to qualify for the credit. In order to be eligible, businesses must have experienced either a full or partial suspension of operations due to a governmental order or a significant decline in gross receipts. Additionally, businesses must be able to demonstrate that their gross receipts for the applicable quarter are less than 50% of the gross receipts for the same quarter in the previous year.
2. Calculate the Credit Amount
Once a business has determined that they are eligible for the Employee Retention Credit, they must calculate the amount of the credit they are eligible to receive. The amount of the credit is based on the amount of wages paid to employees during the applicable quarter, up to a maximum of $5,000 per employee. The credit is limited to 50% of the wages paid, so businesses must ensure that they have calculated the credit amount accurately.
3. Determine the Payment Method
Businesses must also determine how they will receive the credit. The credit can be claimed either as a refundable credit on their quarterly payroll tax returns or as an advance payment from the IRS. Businesses must decide which option works best for them, as the advance payment option may be more beneficial for businesses that do not have a lot of cash on hand.
4. Ensure Compliance with Local Laws
Businesses must be sure to comply with any applicable local laws when claiming the Employee Retention Credit. This includes understanding any state and local payroll tax laws that may be applicable to the business. In addition, businesses must also ensure that they are in compliance with any other applicable state and local laws, such as those related to minimum wage or overtime.
5. Review Payroll Records
Businesses must review their payroll records to ensure that they are accurately tracking the wages paid to their employees. This includes tracking the number of hours worked by each employee, the rates of pay, and any other applicable benefits. Accurate payroll records are essential for businesses to be able to accurately calculate the amount of the Employee Retention Credit that they are eligible to receive.
6. Maintain Documentation
Businesses must maintain all applicable documentation related to the Employee Retention Credit. This includes any payroll records, statements, or other documents that demonstrate that the business is eligible for the credit and the amount of the credit that they are eligible to receive. Maintaining accurate documentation is essential for businesses to be able to make their claim for the credit.
7. File the Correct Forms
Businesses must be sure to file the correct forms with the IRS in order to claim the Employee Retention Credit. This includes Form 941 for quarterly payroll tax returns, Form 943 for agricultural employers, or Form 944 for annual payroll tax returns. Businesses must also ensure that they are filing the forms on time in order to be eligible for the credit.
8. Understand the Credit Limitations
Businesses must be aware of the limitations of the Employee Retention Credit. The credit is only available for wages paid between March 12, 2020 and December 31, 2020. Additionally, the credit is not available for any wages that were already covered by the Paycheck Protection Program or other federal assistance programs.
9. Keep Track of Payments
Businesses must keep track of any payments that they have received from the Employee Retention Credit. This includes any advance payments from the IRS or any payments received on their quarterly payroll tax returns. Keeping track of these payments is essential for businesses to ensure that they are not overpaying the IRS.
10. Consult with a Professional
Businesses should consult with a professional tax or payroll advisor if they have any questions or concerns about the Employee Retention Credit. A professional can provide businesses with the advice and guidance they need to ensure that they are correctly claiming the credit and that they are in compliance with any applicable laws and regulations.
Frequently Asked Questions
What is the Employee Retention Credit?
The Employee Retention Credit is a refundable payroll tax credit that can be claimed by eligible employers who pay qualified wages to employees in 2020 and 2021. The credit was created by the CARES Act and is intended to provide financial relief to businesses as a result of the economic hardship caused by the COVID-19 pandemic. The credit is equal to 50% of qualified wages paid up to $10,000 per employee, per year.
Who is Eligible to Claim the Employee Retention Credit?
Eligible employers include businesses that have been fully or partially suspended due to a governmental order related to COVID-19, or those that have experienced a significant decline in gross receipts of at least 50% as compared to the same quarter in 2019. Businesses who have been open and operating throughout the pandemic but have experienced a reduction in gross receipts due to the pandemic may also be eligible for the credit.
What Qualifies as Wages for the Employee Retention Credit?
Qualified wages are wages paid to employees for the period between March 12, 2020, and January 1, 2021. Wages must be paid while the employee is not providing services due to the COVID-19-related circumstances. Qualified wages include health plan expenses and the employer’s share of Medicare taxes.
What Are the 10 Keys to Unlocking the Employee Retention Credit?
The 10 keys to unlocking the Employee Retention Credit are:
1. Identify Eligibility
2. Calculate Qualified Wages
3. Determine the Amount of the Credit
4. Document with Accurate Records
5. File the Correct Forms
6. Reconcile with Payroll Tax Returns
7. Adjust Withholding Accurately
8. Keep an Eye on the CARES Act
9. Track Unused Credit
10. Reap the Benefits.
What Should Employers Do to Identify Eligibility for the Employee Retention Credit?
Employers should review the criteria described in the CARES Act to determine if they are eligible for the employee retention credit. They should consider their business operations, the impact of the COVID-19 pandemic on their business, and the changes in their gross receipts as compared to the same quarter in 2019.
How Can Employers Calculate Qualified Wages?
Employers should calculate qualified wages by determining the amount of wages paid to employees while they are not providing services due to COVID-19-related circumstances. Qualified wages include health plan expenses and the employer’s share of Medicare taxes. Employers should also consider any wages paid to employees that are not covered by the Families First Coronavirus Response Act.
How Can Employers Determine the Amount of the Credit?
Employers can determine the amount of the credit by multiplying the qualified wages paid to each employee by 50% up to a maximum of $10,000. For example, if an employer pays $8,000 in wages to an employee, their credit would be $4,000. The maximum credit for an employer is $5,000 per employee, per year.
How to File the Original 941 to Claim the Employee Retention Tax Credit (ERTC)
The Employee Retention Credit is a valuable tool for businesses, and understanding the key elements of the credit is essential for taking advantage of it. By taking the time to understand the requirements for the credit, businesses can use the Employee Retention Credit to their advantage to retain their employees and help their bottom line. With the right knowledge, companies can ensure that they are taking full advantage of the credit and helping their business succeed.