With the COVID-19 pandemic continuing to wreak havoc on businesses across the country, many business owners are looking for ways to hang on and keep their businesses afloat.
The good news is that there is help available in the form of the Employee Retention Credit (ERC).
What is the Employee Retention Credit?
The Employee Retention Credit is a refundable tax credit for eligible employers that retain their employees despite experiencing economic hardship due to COVID-19. The credit is equal to 50% of qualified wages (including allocable qualified health plan expenses) paid by the employer to its employees after March 12, 2020, and before October 1, 2021.
If your business has been impacted by COVID-19, you may be wondering how this credit works and whether you qualify.
Let’s take a further look.
Here’s What You Need To Know About This Credit
Qualified wages for purposes of the credit are capped at $10,000 per employee per year. This means that the maximum credit an employer can claim is $5,000 per employee ($10,000 x 50%). Employers are not required to reduce other payroll taxes they owe by the amount of this credit.
However, thanks to this 2021’s new legislation, the Federal Government extended and boosted this credit to 70% against the first $10,000 in wages per quarter.
What does that mean?
The tax credit is now worth up to $7,000 per quarter and can amount for $28,000 per year, if your company has more than one employee.
If the employers pay less in payroll taxes owed during that time period then they will receive a refund then all credits over these amounts will be refunded – paid right back into your company!
How To Qualify For ERC
To be eligible for the credit, an employer must meet one of the following two criteria:
- The employer’s business operation must have been fully or partially suspended during any calendar quarter in 2020 due to orders from an appropriate governmental authority due to COVID-19;
- The employer’s gross receipts must have declined by more than 50% when comparing Q1 2020 with Q1 2019 or more than 20% when comparing Q1 2021 with Q1 2019 and Q2 2021 with Q2 2019.
- If a business has been in operation for less than two years, it can still qualify by electing to use gross receipts from the immediately-preceding calendar quarter. For Q1 2021, gross receipts comparison of Q4 2020 v. Q4 2019. However, if the business was not opened since the beginning of 2019 then this election cannot be used.
I know that is a lot to take in and it’s understandable to be a little overwhelmed with all the financial jargon. But don’t worry, you’re not alone in this.
The best thing to do is to contact a tax professional that can help you along the way.
Have questions about whether you qualify for the Employee Retention Credit? Contact us today, we are happy to assist you.