As the COVID-19 pandemic ravaged the global economy, countries worldwide employed different measures to cushion its impact. One of the measures that countries have employed is tax relief for businesses. The United States government has been no exception, releasing several tax incentives for businesses to help mitigate the effects of the pandemic. In this article, we will explore the 2022 employee retention tax credit and what employers need to know.
The 2022 employee retention tax credit (ERTC), signed into law in December 2021, is a provision of the Bipartisan Infrastructure Package. The ERTC is designed to incentivize employers to retain employees who might otherwise be laid off or furloughed due to pandemic-related downturns. The ERTC provides eligible employers with a tax credit of up to $50,000 per quarter for employee retention.
Eligibility for the ERTC
Eligibility for ERTC may vary, depending on the size of the business and how the business was affected by the pandemic. To qualify, a business must have experienced a drop in gross revenue of at least 20% in 2021 compared to 2019. Alternatively, a business may also be eligible if they were fully or partially shut down due to government orders.
If a company is deemed eligible, it can claim up to $50,000 per quarter to help retain its employees. However, eligible employers must fulfill specific requirements, such as keeping qualifying employees on the payroll and organizing periodic checks for fraud.
How to Apply for ERTC
Applying for the ERTC may not be as straightforward as applying for other government benefits. Employers who wish to take advantage of the ERTC must file their claims on their employment tax returns. It may not be immediately clear if an employer qualifies for the credit, but employees can access the ERTC for each quarter by completing and submitting the appropriate paperwork.
Employers may need to work in collaboration with state and federal tax officials to determine eligibility and receive their credits. Therefore, it is essential to be upfront with employees to get the appropriate documents in time to avoid delaying payment and disbursement of funds.
Key Takeaways
The 2022 employee retention tax credit is a welcome relief for businesses that struggled in 2021 due to the pandemic. Eligible employers can use the funds to retain qualified workers and invest in their businesses. However, there are specific steps that employers must take to qualify for the credits, including keeping records, filing employment tax returns, and collaborating with government tax officials.
Finally, it is critical to work with tax professionals in taking full advantage of the ERTC. These professionals have the expertise to determine if a business qualifies for the credit and navigate the steps required to claim it. Businesses that maintain transparency and diligence with employees are better situated to access the 2022 employee retention tax credit‘s benefits.