Deciphering the employee retention credit: Does Your Business Qualify?
The COVID-19 pandemic has had a profound impact on businesses across the globe. Many have struggled to stay afloat, leading to layoffs, closures, and financial hardships. To provide some relief, the government has implemented various stimulus measures, including the employee retention credit (ERC). But do you know if your business qualifies for this credit?
The employee retention credit is a provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that aims to support eligible employers who were financially affected by the pandemic. It provides a refundable tax credit to businesses that retain their employees, helping them to meet payroll obligations and keep workers on board.
So, how can you determine if your business qualifies for the employee retention credit? Let’s take a closer look at the eligibility criteria:
1. Business operations: To be eligible, your business must have experienced either a full or partial suspension of operations due to a government order related to COVID-19. This means that if your business had to close or reduce operations due to city, state, or federal mandates, you may qualify for the credit.
2. Significant decline in gross receipts: If your business’s gross receipts for any quarter in 2020 were less than 50% of what they were in the same quarter of 2019, you could be eligible for the credit. The decline in gross receipts can be used as a basis for qualifying in subsequent quarters until your receipts recover to 80% or more of the prior year’s quarter.
3. employee count: The size of your business matters when it comes to the employee retention credit. If your business had an average of more than 100 full-time employees in 2019, you can claim the credit only for those employees who were not providing services due to the COVID-19 related circumstances mentioned above. However, if your business had 100 or fewer employees, all wages paid during the eligible period qualify for the credit.
Now that you have a basic understanding of the eligibility criteria, it’s essential to consider the specifics of the credit. The ERC can be claimed for qualifying wages paid between March 13, 2020, and December 31, 2021. Employers can claim a credit of up to 70% of qualified wages paid to each eligible employee, with a maximum credit of $7,000 per employee per quarter.
It’s important to note that the employee retention credit cannot be claimed if you have already received a Paycheck Protection Program (PPP) loan. However, if you missed out on the PPP or didn’t exhaust all the funds, you can still qualify for the credit.
Applying for the employee retention credit can be a complex process, and it is advisable to seek the assistance of a tax professional or consult the guidelines provided by the IRS. They offer detailed instructions on calculating the credit, applying it to your payroll taxes, and reporting it on your tax return.
In conclusion, the employee retention credit can be a valuable lifeline for businesses struggling in these challenging times. By understanding the eligibility criteria and following proper procedures, you can determine if your business qualifies and take advantage of this relief measure. Remember, seeking professional advice is always a wise decision when it comes to navigating complex tax matters.