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Employee Retention Credit is a tax credit offered by the IRS to encourage businesses to keep their employees on the payroll. In order to qualify for this credit, a company must have experienced a significant decline in its gross receipts during a calendar quarter. There are multiple ways to calculate the amount of credit an employer can claim. The amount is based on the number of qualified wages paid to qualifying employees.
Employers that are eligible for this credit can claim up to $10,000 in credit per quarter.
The Employee Retention Credit is available for businesses of all sizes. It has been designed to encourage firms to keep their employees on the payroll during the COVID-19 pandemic.
However, even small companies that have closed down can still claim the credit.
How it Works
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This program is a refundable tax credit that allows an employer to claim a credit for up to 50% of the qualifying wages paid to their employees. A business can qualify for the credit if it has reduced its gross receipts by at least 50 percent during a calendar quarter. If an employer does not qualify for this credit, it can file a request in rebate (Form 941-X) to receive a refund of the credit.
For qualifying businesses, the employee retention credit is a great way to help cover expenses related to the pandemic. An employer can claim the credit for up to five months of wages earned between March 13, 2020 and December 31, 2020. They must also provide full documentation to verify their eligibility.
Eligibility Requirements
As of January 1, 2019, the eligibility requirements have changed. To qualify for the credit, an employer must have been impacted by the COVID-19 mandate. During the pandemic, a variety of industries saw a decline in sales and earnings. Businesses that experienced the most decline were the hardest hit. Using the new guidance, companies can evaluate whether they are eligible for the credit.
To qualify for the Employee Retention Credit, a company must have at least one full-time or part-time employee who worked at least 130 hours in a month. Full-time employees are defined as those who work at least 30 hours a week. Part-time employees are those who work less than an average of 30 hours a week.
The IRS has made changes to the ERC qualifying standards for the 2020 and 2021 programs. Companies that meet the criteria can receive a $26,000 grant per employee. These changes have made the credit more accessible.
One key change is that employers no longer need to be on PPP to qualify for the credit. PPP accounts for 2.5 times the monthly payroll expense. When calculating the amount of credit, an employer can exclude the amount of the Shuttered Venue Operators grant. Another key change is that forgiven PPP loans do not count as qualifying wages.
The IRS has issued a series of guidance articles that will help businesses determine if they are eligible for the Employee Retention Tax Credit. Whether you are an employer looking for help with the program, or are a CPA who has questions about it, the IRS has answers.
Employee Retention Credit Application
The ERC can be applied for with Form 941-X. There are several ways to calculate the credit. Typically, the amount is based on the qualifying wages and the other personnel costs. During a period of significant revenue loss, employers can claim the credit.
An employee is a full-time employee if he or she works at least 130 hours per month. Tips under $20 in a calendar month are not included in the calculation. Moreover, tips over $20 in a calendar month are also included in the calculation.
To claim the credit, the employer must disclose the entire qualifying salary on a quarterly work tax return. In addition, the business must show a decrease in gross receipts.
To determine if your business is eligible, contact Cherry Bekaert’s ERC Services Team. They can provide you with guidance on the credit and other COVID relief options.
See if you qualify and start the application process below…
ERC Deadline for 2023
Businesses could originally claim this tax credit until October 1, 2021. Earlier, the deadline was January 1, 2022. But that deadline changed when the Infrastructure Investment and Jobs Act passed, and businesses can still apply for the ERC in 2023.
In order to get the most out of the Employee Retention Tax Credit, it is important to know when the deadline is. If you have questions about the program, speak with a qualified accountant. You can also ask a disaster loan advisor for assistance.
The Employee Retention Credit has helped many businesses, including those that experienced severe financial distress during the recent pandemic. During the pandemic, many businesses experienced a complete or partial shutdown due to government restrictions on commerce. As a result, many employers were unable to pay their employees. Fortunately, the Employee Retention Credit allowed these businesses to keep their staff.
Find out if your business qualifies below:
