Employee Retention Tax Credit Helps

Employee Retention Tax Credit: What You Should Know

With the Updated Employee Retention Credit, you can retain your employees and receive a 50% or 70% payroll tax credit.

The Employee Retention Credit (ERC) is to help employers keep employees on the payroll, even if they’re not currently working due to the consequences of the COVID-19 outbreak.

If you’re an employer, you can take advantage of this updated credit. Learn what the employee retention tax credit is, how it works, and how to get it.

 

What is The Employee Retention Tax Credit?

The ERC is part of a business relief provision in the Coronavirus Aid, Relief, and Economic Security Act (CARES), created to help struggling employers who have been negatively affected by government-ordered COVID-19 regulations or whose gross receipts decline by more than 50%.

The employee retention tax credit is a refundable payroll tax credit. The credit is 50% of up to $10,000 in wages paid by an employer. Employers can get instant access to the credit by reducing employment tax deposits they are otherwise required to make.

 

Who is Available for the Employee Retention Tax Credit?

If they operate a trade or business, the credit is available to all employers, including tax-exempt organizations. There is no limitation regarding the organization’s size; however, there are two exceptions you should be aware of.

State and local governments and their instrumentalities and small businesses who take Small Business Loans are not eligible for the Retention Tax Credit.

 

To qualify as an employer, you must meet one of two qualification tests. The tests are calculated each calendar quarter. For the period from March 13, 2020, through December 31, 2020, you must have carried on a trade or business or were a tax-exempt organization that falls into either of the following scenarios.

  1. Your business is fully or partially suspended by government orders limiting commerce, travel, or group meetings due to COVID-19 during the calendar quarter.
  2. You experienced a significant decline in gross receipts. If gross receipts were below 50% of the comparable quarter in 2019, you might qualify as an “eligible employer.”

Please note that once gross receipts went above 80% of a comparable quarter in 2019, you no longer qualify after the end of that quarter.

 

How to Calculate the Credit

The credit is 50% of the qualifying wages paid up to $10,000 in total for wages paid after March 13 and before December 31, 2020.

If you had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees. If you had 100 or more employees on average in 2019, the credit is provided only for wages paid to employees who did not work during the calendar quarter due to COVID-19.

 

Claiming The Retention Tax Credit

To claim the new Employee Retention Credit, you have to report your total qualified wages and the related health insurance costs for each quarter of your quarterly employment tax returns (Form 941).

Additionally, you can request an advance of the Employee Retention Credit by submitting Form 7200.

 

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