Does Your Business Qualify for an Employee Retention Credit?

If you’re a business owner or manager, you know that keeping your employees is essential to the success of your organization. But what if you could get a financial incentive to help retain your employees? With the Employee Retention Credit, you may be able to do just that. This article will explain what this credit is and how to determine if your business qualifies.

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a federal tax credit that was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERC is designed to help businesses cover the cost of keeping employees on the payroll during the COVID-19 pandemic. The ERC provides businesses with a refundable tax credit of up to 50% of qualified wages paid to employees. The maximum credit available is $5,000 per employee.

Who Qualifies for the Employee Retention Credit?

The ERC is available for businesses that have been affected by the pandemic. To qualify for the credit, businesses must have experienced a full or partial shutdown due to a government order related to COVID-19, or have seen a significant decline in gross receipts of more than 50% compared to the same quarter in the prior year.

Qualified wages are the wages paid to employees from March 12, 2020 to December 31, 2020. The credit is available for wages paid to employees regardless of whether the employee works onsite or remotely. The maximum credit for each employee is $5,000.

How to Claim the Employee Retention Credit

Businesses can claim the ERC using IRS Form 941, Employer’s Quarterly Federal Tax Return. The credit is claimed on Line 10 of the form and is refundable. This means that businesses can receive the credit even if they don’t owe any taxes.

The credit is also available to businesses that receive a Paycheck Protection Program loan and can be claimed in addition to the loan forgiveness. Businesses can elect to have the credit applied against their payroll taxes, or can request a refund from the IRS for the amount of the credit.

Calculating the Employee Retention Credit

The ERC is available for businesses that have experienced a full or partial shutdown due to a government order related to COVID-19, or have seen a significant decline in gross receipts of more than 50% compared to the same quarter in the prior year. The credit is equal to 50% of qualified wages paid to employees, up to $5,000 per employee.

Who Is Not Eligible for the Employee Retention Credit?

The ERC is not available to businesses that have received a Paycheck Protection Program loan after December 27, 2020, unless the loan has been fully or partially forgiven. The credit is also not available to businesses that receive funds from the Shuttered Venue Operators Grant program or the Targeted Economic Injury Disaster Loan Advance program.

Summary of the Employee Retention Credit

The Employee Retention Credit is a federal tax credit that was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERC provides businesses with a refundable tax credit of up to 50% of qualified wages paid to employees. The maximum credit available is $5,000 per employee. To qualify for the credit, businesses must have experienced a full or partial shutdown due to a government order related to COVID-19, or have seen a significant decline in gross receipts of more than 50% compared to the same quarter in the prior year. The credit is claimed on Line 10 of IRS Form 941, Employer’s Quarterly Federal Tax Return. The credit is also available to businesses that receive a Paycheck Protection Program loan and can be claimed in addition to the loan forgiveness.

Frequently Asked Questions

What is the Employee Retention Credit?

The Employee Retention Credit is a refundable tax credit for employers who are impacted by the Coronavirus (COVID-19) pandemic. It allows eligible employers to claim up to 50% of certain wages paid to employees during the crisis. The credit is available to employers whose operations have been fully or partially suspended due to a COVID-19-related governmental order, or whose gross receipts have declined by 50% or more compared to the same quarter in the prior year.

What wages qualify for the Employee Retention Credit?

The Employee Retention Credit applies to qualified wages paid from March 13, 2020 to December 31, 2020. Qualified wages are wages paid to employees for time worked, up to a maximum of $10,000 for all quarters. This includes wages paid for vacation, parental, family, medical, or sick leave, and health plan expenses.

How do I know if my business qualifies for the Employee Retention Credit?

Businesses may qualify for the Employee Retention Credit if they have been fully or partially suspended due to a COVID-19-related governmental order, or experienced a decline in gross receipts of 50% or more compared to the same quarter in the prior year.

When can I claim the Employee Retention Credit?

Employers can claim the Employee Retention Credit on their quarterly payroll tax returns, or on an amended return for any prior quarters. The credit is also claimable for wages paid for any quarter in 2020.

Are there any other qualifications for the Employee Retention Credit?

Yes, there are a few other qualifications for the Employee Retention Credit. The business must have been in operation on February 15, 2020, and must not have received a Paycheck Protection Program (PPP) loan. Additionally, employers must have fewer than 500 full-time employees in order to qualify.

How much can I claim for the Employee Retention Credit?

Employers may claim up to 50% of qualified wages, up to a maximum of $10,000 per quarter, per employee. This means that the total amount of the credit available to an employer is the lesser of $5,000 per employee, or the amount of qualified wages paid during the quarter.

Employee Retention Tax Credit: Does Your Business Qualify?

If you have employees and you think your business may qualify for an Employee Retention Credit, you should consider looking into it further. The Employee Retention Credit can be a great way to help your business weather through turbulent times, and potentially save you thousands of dollars. It’s worth taking a closer look and seeing if your business qualifies.