The Ultimate Guide to Small Business employee retention credit: Everything You Need to Know
As a small business owner, you understand the value of a hardworking and dedicated team. employee retention is crucial for the success of any business, and the employee retention credit (ERC) is a valuable tool that can help you retain your top talent. This credit was introduced as part of the CARES Act in 2020 and has since been extended and expanded as part of the American Rescue Plan Act in 2021.
What is the employee retention credit?
The employee retention credit is a refundable tax credit that is designed to encourage businesses to retain employees during the COVID-19 pandemic. The credit is available to small businesses that have experienced a significant decline in gross receipts or were forced to partially or fully suspend operations due to government orders related to COVID-19.
How much is the credit worth?
For 2020, the employee retention credit is worth up to 50% of qualified wages paid to employees up to a maximum credit of $5,000 per employee. For 2021, the credit has been expanded and is now worth up to 70% of qualified wages paid to employees up to a maximum credit of $28,000 per employee.
Who is eligible for the credit?
To be eligible for the employee retention credit, your business must have experienced a significant decline in gross receipts or have been forced to partially or fully suspend operations due to government orders related to COVID-19. Small businesses with fewer than 500 employees can claim the credit for wages paid to employees during the COVID-19 pandemic.
How to claim the credit?
To claim the employee retention credit, you will need to file Form 941, the Employer’s Quarterly Federal tax Return. If you have already filed your quarterly returns, you can file an amended return to claim the credit. You may also be able to receive an advance payment of the credit by filing Form 7200, the Advance Payment of Employer Credits Due to COVID-19.
It’s important to note that you cannot claim the credit if you have received a Paycheck Protection Program (PPP) loan. However, if you have not yet applied for or received a PPP loan, you can still claim the employee retention credit.
In conclusion, the employee retention credit is a valuable tool that can help small businesses retain their top talent and navigate the challenges of the COVID-19 pandemic. By understanding the eligibility criteria and how to claim the credit, small business owners can take advantage of this valuable tax credit and support their employees during these uncertain times. Be sure to consult with a tax professional to ensure that you are taking full advantage of the employee retention credit and maximizing its benefits for your business.