The recent pandemic put a huge strain on businesses, and many are still struggling to retain employees during these challenging times. The Employee Retention Credit (ERC) offers businesses an incentive who kept on their payroll during that time. It hopes to help the U.S. economy come back even stronger after recovering from the devastating impact the pandemic has had on the country.
Who is Eligible to Apply for Employee Retention Credit?
The Employee Retention Credit is a system that we encourage any employers to look into. It offers a refundable tax credit which can be applied to some employment taxes equalling up to 50% of the qualified wages paid between March 12, 2020, and January 1, 2021. Any employers, including tax-exempt organizations, can apply for this credit if they operated during the 2020 calendar year and had either a decline of 50% or more in 2020 or 20% in 2021 in their gross receipts or fully or partially suspended their operations due to COVID-19 during any calendar quarter. The credit will apply to any qualified wages paid during this time or the period in which your operations were suspended.
What are Qualified Wages?
Qualified wages are dependent on the number of employees you have in your organization. For anyone with 100 or fewer full-time team members in 2019, qualified wages are paid to an employee during the decline in gross receipts with a limit of $5k per employee in 2020, or $14k per employee in 2021, or suspended operations. In addition, this change now allows you to claim ERC in combination with a PPP loan. For companies with over 100 full-time employees, you will only be able to count wages that an employee would have been paid for the equivalent duration of the 30 days immediately preceding the period of difficulty for your organization. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.
Applying for the Employee Retention Credit
For your company to claim the Employee Retention Credit, you will need to report the total qualified wages and health insurance costs each quarter. This will be noted on your quarterly tax returns, starting with the second quarter, which is usually completed on the Form 941. If you are applying for the ERC, you can retain employment taxes that you would otherwise have paid without penalty.
As the Employee Retention Credit was updated in 2021, more businesses will apply for this system and help retain their employees. These payments can be offset to eliminate payroll tax business owners who have been particularly hard hit during the past year. It’s one of the best assistance systems for business owners in the U.S. and offers thousands of dollars per employee in credits. Companies are receiving hundreds of thousands of dollars in credit after applying for the ERC, so you’ll want to check if this is something you are eligible for.
If your business has been impacted by the pandemic and meets all of the criteria listed above, don’t delay applying for the ERC. This will ensure you receive the credit you deserve, which can help you rebuild your business in the upcoming years. Visit the official IRS website to find out more about the Employee Retention Credit.