You’re navigating the tough waters of pandemic-era business. One lifesaver? The Employee Retention Credit.
Designed to keep your team on payroll, it’s now worth 70% of wages. Whether you’ve seen a drop in receipts or partially suspended operations, this credit’s for you.
Let’s delve into the nitty-gritty of qualifications, how to calculate, and claim up to $28,000 per employee.
Ready to see how this credit can buoy your business? Let’s dive in.
You’re probably wondering what the Employee Retention Credit is; it’s a relief measure introduced in the CARES Act to encourage businesses like yours to keep employees on payroll during the pandemic, and it’s been increased to cover 70% of qualified wages for 2021. This tax credit was initially worth 50% of wages, capped at $10,000 per employee. However, it has been updated to 70% of the qualified wages, for a maximum of $7,000 per quarter or $28,000 per employee for 2021.
Eligibility for this credit has been expanded to include private-sector employers or tax-exempt organizations that either fully or partially suspended operations due to COVID-19 orders in 2020, or experienced a significant decline in gross receipts. Starting 2021, the requirements were updated, and a more than nominal portion of your business operations must have been suspended.
To calculate your Employee Retention Credit, you’d take 70% of the qualified wages, with a cap of $10,000 per employee per quarter. This includes qualified health plan expenses as well. It’s essential to note that the total credit that can be claimed per employee for the year 2021 is $28,000.
To claim this credit, report your qualified wages and credit on Form 941. In case of excess credit, it’s treated as an overpayment and refunded. If you need an advance payment of the remaining credit amount, you can request it using Form 7200. Do remember that different rules apply to employers with under 100 employees and under 500 employees for certain portions of 2020 and 2021.
To be considered for this benefit, your business operations must have been either fully or partially suspended due to COVID-19 orders, or you must have experienced a significant drop in gross receipts. As an eligible employer for the Employee Retention Credit in 2020, you could be any private-sector employer or tax-exempt organization carrying on a trade or business during the calendar year.
However, it’s important to note that the rules for eligibility have been updated for 2021. Now, more than a nominal portion of your business operations must have been suspended. To put it in perspective, a portion of your business is considered more than nominal if either the gross receipts from that portion of business operations aren’t less than 10% of the total gross receipts (determined by the same calendar quarter in 2019), or the hours of service performed by employees in that portion of the business aren’t less than 10% of the total number of hours of service performed by all employees in your business.
For instance, if your business had to limit its operations due to government orders, such as closing dining rooms but offering carry-out or delivery service, or limiting hours of operation, you might be eligible for this credit. Importantly, the work can’t be performed remotely for you to qualify.
Under the CARES Act, if government orders have forced you to limit your business operations, such as reducing your hours or closing certain sectors, that’s classified as a partial suspension of business operations. This was introduced as a measure to keep businesses afloat and employees on the payroll during the COVID-19 pandemic.
If you’ve had to modify your operations because of a federal, state, or local decree, you could be considered as partially suspended. For instance, if you run a restaurant and had to shut your dining room but continued offering carryout or delivery services due to a municipal order, your operations are deemed partially suspended.
The same applies if you’ve had to limit the hours your business is open or if a portion of your operations had to be closed. If your employees can’t perform their work remotely, this also falls under partial suspension.
Being classified as partially suspended can qualify you for the Employee Retention Credit. This credit, under the CARES Act, is designed to encourage employers to retain their employees during these challenging times. The credit is worth 70% of the qualified wages for 2021, capped at $10,000 per employee per quarter, meaning a maximum credit of $7,000 per quarter per employee.
It’s important to understand these provisions and take advantage of the financial relief they offer. Ensure you’re keeping detailed records of your operations and any government orders impacting them to support your claim for the Employee Retention Credit. After all, every bit helps in navigating through the economic challenges of the pandemic.
As a business owner, it’s crucial you’re aware of the eligibility criteria for this particular tax credit, which include factors like the type of organization and the impact of COVID-19 on business operations. To qualify, your organization must either be private-sector or tax-exempt and have either fully or partially suspended operations due to COVID-19. Additionally, your business must have experienced a significant decline in gross receipts.
More specifically, your business qualifies if its gross revenue in a fiscal quarter is less than 50% of the same calendar quarter in 2019. You’re no longer eligible if your quarter’s total revenues hit 80% in the fiscal quarter succeeding the same calendar quarter in 2019.
If you’re a newer business and don’t have 2019 numbers, you can use your gross revenues from your first quarter of business as a reference point.
The size of your workforce also impacts your eligibility. If you’d 100 or fewer employees in 2019, the credit is based on all wages paid, regardless of whether they worked. If you’d more than 100 employees, the credit is only for wages paid to employees who didn’t work during the quarter.
These wages include not only salaries but also a portion of the cost of health care benefits.
You’re probably wondering if your business is eligible for this particular tax benefit, aren’t you? The Employee Retention Credit (ERC) is a provision introduced in the CARES Act to alleviate financial burden on businesses during the COVID-19 pandemic. It’s essential to understand the specifics to ensure you meet the qualifying criteria.
For the calendar year 2020, your business needs to have either fully or partially suspended operations due to governmental orders related to COVID-19, or experienced a significant decline in gross receipts during any calendar quarter. However, the eligibility rules have been updated for 2021.
Three important updates for 2021 include:
The ERC aims to encourage businesses to keep employees on payroll by offering a tax credit worth up to 70% of qualified wages for 2021. It’s a significant benefit, but it’s crucial to ensure your business operations align with the updated qualifications. Remember to consult with a financial advisor or HR professional to navigate these complex regulations successfully.
In doing so, you’ll ensure that your business benefits from this significant financial relief.
Despite what you might think, this tax benefit isn’t applicable to all businesses; there are certain eligibility criteria that your company must meet.
The Employee Retention Tax Credit (ERTC), introduced as part of the CARES Act, was designed to stimulate the economy and encourage employers to keep their staff on payroll during the COVID-19 pandemic.
To qualify for the ERTC, you must be a private-sector employer or a tax-exempt organization. Your business must have experienced a full or partial suspension of operations due to COVID-19 related government orders in 2020. It’s important to note that the suspension of operations must be significant, not simply nominal. For example, if you own a restaurant and were forced to close your dining rooms but continued offering carry-out or delivery services, you could still be eligible.
An additional condition is that your company must have experienced a substantial decline in gross receipts. The specifics of what constitutes a ‘significant decline’ have been updated for 2021, so it’s crucial to stay informed about these changes.
Finally, you must accurately calculate the value of the ERTC, which is now 70% of qualified wages for 2021, up from 50% last year. Keep in mind, the maximum qualified wages per employee per quarter is $10,000, and the maximum credit for a quarter with respect to any employee is $7,000.
As you navigate these regulations, don’t allow misinformation to keep you from claiming your rightful refund. Stay informed and consult with professionals to understand if you’re eligible for the ERTC.
In conclusion, the Employee Retention Credit is an effective tool to ease the financial strain of retaining your workforce amidst challenges. Understanding the eligibility criteria, such as a significant dip in gross receipts or a partial business suspension, is key.
Remember, this credit isn’t limited by business size. So, explore how your business could capitalize on this opportunity, potentially claiming up to $28,000 per employee for 2021.
Make the most of the Employee Retention Credit today!
