As the saying goes, ‘time is money’ – and employers are now able to get a return on their investment in staff with the Employee Retention Tax Credit. This credit offers financial incentives to businesses that retain employees during economic hardship.
But who qualifies for this tax break? Read on to find out!
When it comes to employee retention, understanding the rules of eligibility can be tricky. The important thing is knowing what criteria must be met in order for your business to benefit from the Employee Retention Tax Credit.
In this article, we’ll look at who is eligible for this credit, so you can make sure your company gets its due share of rewards.
Overview Of The Employee Retention Tax Credit
The Employee Retention Tax Credit is a great way to help businesses keep their employees during difficult times. It helps employers by providing them with a tax credit for certain wages they pay to their workers.
To be eligible, an employer must have had operations that were fully or partially suspended due to government orders related to COVID-19 in 2020. They also must have experienced either a 50% decline in gross receipts compared to the same quarter in 2019, or saw revenue drop between Jan 1st and Dec 31st of 2020 when compared with the same period in 2019.
Employers who are eligible can get up 70% of employee wages paid from March 13th through December 31st back as tax credits. The amount of money received depends on how many employees the business has and how much it pays each one. The maximum wage per employee that can be credited is $10,000 per quarter so if you pay more than this then you won’t get more than that amount back. For example, if your total payroll expenses for all your staff was $100,000 then the most you could receive would be $70,000 (7 x 10k).
When filing taxes there are several forms that need to be filled out correctly in order to take advantage of these benefits. You’ll need to fill out Form 941 which is used for reporting payroll taxes and file it along with any other relevant documents like Forms 7200 or 8845 depending on what kind of company you have.
Additionally, make sure that all information provided is accurate because incorrect data may result in penalties or delays in getting the credit applied to your account.
It’s important for employers to understand the requirements for qualifying for this program and ensure they’re taking full advantage of its benefits. Employers should contact an accountant or financial advisor if they have any questions about eligibility or how best to apply for the credit. By doing so, employers will maximize their savings while keeping their employees employed during challenging economic times and helping to stimulate the economy.
Eligibility Criteria For Employers
Do employers qualify for the employee retention tax credit? It’s a great question and one that many people are asking. The answer is yes – but there are some eligibility criteria to consider first.
To be eligible, an employer must have seen either a full or partial suspension of their business operations due to government orders issued in response to COVID-19, OR they must have had a significant decline in gross receipts. A ‘significant decline’ means that the employer’s quarterly gross receipts declined by more than 20% when compared with the same quarter in 2019.
Employers also need to check whether they fall into the category of “eligible entities.” Eligible entities include corporations, partnerships, sole proprietorships and other businesses such as non-profit organizations and tribal businesses. There are certain types of businesses which aren’t eligible though, like those who receive payments from the Paycheck Protection Program (PPP).
It’s worth noting too that if your business has fewer than 100 employees then you can use wages paid between March 12th 2020 and January 1st 2021 to determine your credit amount – however if you’ve got over 100 employees then it’s only wages paid after June 30th 2020 which count towards your calculation.
So now we know what makes an employer eligible for this tax break; let’s look at how much money could be saved each year!
Qualifying Wages
Employers must meet certain criteria to qualify for the employee retention tax credit. They must have experienced either a full or partial suspension of their business operations due to an order from a governmental authority related to COVID-19, or they’ve had significant declines in gross receipts compared to the same quarter in 2019. Other qualifications include limits on wages and hours that employers can claim when considering employees for the credit.
There are several requirements regarding what wages qualify for the employee retention tax credit. To be eligible, the employer’s qualified wages paid during any calendar quarter within 2020 may not exceed more than $10,000 per employee. This amount includes health benefits as well as all cash payments made by the employer that don’t exceed this limit. Qualified wages may also include those related to furloughed employees who are not working but still receiving pay from their employer.
The IRS specifies which types of employees are excluded from being considered qualifying wage earners for the employee retention tax credit program. Employees whose primary duties involve providing services outside of the United States, as well as family members who own at least 50% of the business and its subsidiaries, are ineligible if they receive compensation over $10,000 per calendar quarter. Additionally, any other owners with more than 5% ownership stake cannot count towards calculating the qualified wages associated with this tax credit program.
Taxpayers should keep detailed records of both employers and employees involved in claiming this tax credit in case there is ever an audit conducted by the Internal Revenue Service (IRS). Employers should document how much each employee was paid during every single quarter along with accurate reporting about whether any part of their business operation was suspended due to orders from a governmental body related to COVID-19 or if there were substantial drops in revenues year over year between 2019 and 2020.
Employers With Fully Or Partially Suspended Operations
Employers with fully or partially suspended operations may qualify for the employee retention tax credit. This means that businesses whose operations have been completely or partly shut down due to government orders related to coronavirus can get a refundable tax credit of up to $5,000 per employee they retain and pay during the suspension period. The amount an employer gets depends on how much money they spend on wages paid to employees between March 12th, 2020 and January 1st, 2021.
To be eligible for this credit, employers must show that their business was subject to one of two conditions: either full or partial suspension because of mandated health guidance from a governmental authority; or at least a 50% decline in gross receipts compared with the same quarter in 2019. Self-employed individuals are also able to take advantage of this benefit as well.
The IRS has stated that employers cannot receive both the Employee Retention Credit (ERC) and Paycheck Protection Program Loan Forgiveness (PPPLF). If you received loan forgiveness through PPPLF, you won’t be able to claim ERC but if your business received a PPP loan but no forgiveness yet, then you might be eligible for ERC too. It’s important that employers calculate which option is more beneficial for them before filing taxes.
In order to apply for the employee retention tax credit, first make sure that your company qualifies by examining whether it meets all criteria outlined by the IRS. Then complete Form 941 – Employer’s Quarterly Federal Tax Return and file it along with other required documents such as Forms 940 & Schedule R – Allocation Schedule for Aggregate Form 941 Taxes Paid. Once everything has been submitted correctly, you will receive your refund within 90 days after filing Form 941 quarterly return form.
Eligibility Requirements For Employees
Employers who have had to suspend their operations due to the pandemic may be eligible for an employee retention tax credit. This credit is designed to help employers keep employees on their payrolls despite having to scale back or stop production altogether.
To qualify for this tax credit, there are some specific eligibility requirements that must be met.
First and foremost, businesses must have experienced either a full or partial suspension of operations during 2020 as a result of governmental orders related to COVID-19. The business must also show that it has seen either a significant decline in gross receipts or a greater than 50% reduction from what was reported in the same quarter one year prior.
In terms of employee eligibility, all workers employed by the company before February 15th of 2020 can qualify for the credit. However, seasonal employees do not count unless they worked more than 120 days between January 1st and December 31st of 2019. Employees making annual wages over $10 million dollars cannot be included in the calculation either.
When claiming this credit, employers will need proper documentation such as quarterly statements showing any changes in gross receipts along with W-2 forms verifying salaries paid out during those quarters where an employee retention tax credit claim is being made.
With these documents in hand, companies should then contact their accountant or another financial advisor familiar with federal taxes to determine if they meet all applicable criteria and begin filing the appropriate paperwork accordingly.
Claiming The Employee Retention Tax Credit
When it comes to claiming the Employee Retention Tax Credit, employers must meet certain qualifications. To be eligible for the ERTC, businesses must have been fully or partially shut down due to COVID-19 restrictions imposed by a government authority. They also need to show that their gross receipts declined by at least 20% in 2020 compared with 2019.
If an employer meets these criteria, they can then claim up to 50% of qualified wages paid between March 13th and December 31st of 2020. Qualified wages are limited to $10,000 per employee per calendar quarter so the total credit amount is capped at $5,000 per employee during the year. The credit is refundable against quarterly payroll taxes and employers can get up to 70 percent advance payment from the IRS on their tax returns if needed.
Employers should remember that this isn’t just a one-time deal – they will still qualify for the ERTC even if their business bounces back before 2021 ends as long as their gross receipts remain lower than what was reported in 2019. Additionally, any payments made after December 31st won’t count towards the credit but those made before December 31st will be eligible for retroactive credits when filing taxes next year.
Finally, if an employer has already laid off staff due to COVID-19 related hardships, they may still receive a partial tax credit based on qualified wages paid out prior to termination dates. Employers should speak with experienced professionals or contact the IRS directly if they need help calculating how much of a credit they’re able to claim.
Calculating The Credit Amount
Calculating the Employee Retention Tax Credit is pretty simple. You just need to figure out how many employees you have and what wages they make. The amount of your credit depends on these two things.
To get started, count up all of your full-time employees who worked for you during 2020 and 2021. This includes any employee that works at least 30 hours a week or 130 hours a month. A part-time employee can also be counted if their total wages for the year are more than $10,000.
Once you know how many employees you have, you’ll need to calculate the qualified wages for each one. Qualified wages are those paid between March 12th, 2020 through December 31st, 2021–but only up to $10,000 per quarter per employee. If an employee makes more than this in a quarter, it won’t count towards the tax credit calculation.
Finally, add up all the qualified wage amounts from each employee and multiply them by 50%. That’s the maximum potential value of your credit!
Filing And Paying The Credit
To get the employee retention tax credit, you have to meet certain criteria. First, your business must be affected due to COVID-19 as a result of government orders or significant decline in gross receipts.
You also need to pay qualified wages to employees during the period from March 13th 2020 until December 31st 2020.
You can find out if you are eligible for the credit by filling out Form 941-X and attaching it with your regular quarterly payroll return. If you don’t usually file this form then you will have to file it separately when claiming the credit.
This form should include information regarding your total wages paid between those dates and any health plan expenses allocated over them too.
Once you fill out the form, send it off along with payment for taxes owed through an electronic funds transfer system like EFTPS. Then wait for IRS approval which can take up to 90 days depending on how much paperwork is involved – so make sure to allow plenty of time!
The amount approved will be sent back directly into your bank account after processing is complete.
If you want more information about filing for this tax credit there are lots of resources available online that can provide guidance including websites created by both state governments and federal agencies such as the Internal Revenue Service (IRS).
With these tools, employers can gain insight into what they qualify for and how best to go about getting the money they deserve!
Conclusion
The employee retention tax credit can be a huge help to employers and employees alike. It’s important for both parties to understand the criteria that must be met in order to qualify, as well as how to properly file and pay the credit.
With this knowledge, businesses will have more resources available to them so they can get back on their feet quicker and stronger than ever before. The image of companies rising from the ashes with renewed vigor is one we’d all like to see come true!
