If you’re a business owner who uses QuickBooks for your accounting and payroll needs, then you’re already in a great position to take advantage of the employee retention credit (ERC). The ERC is a valuable tax credit that is designed to encourage businesses to retain and rehire employees during the COVID-19 pandemic.
In order to accurately record the ERC in QuickBooks, it’s important to understand the eligibility criteria and the specific requirements for claiming the credit. Here’s a complete guide to help you make the most of this valuable opportunity.
Understanding the employee retention credit
The ERC is a refundable tax credit that was introduced as part of the CARES Act in 2020. It was designed to provide financial relief to businesses that were affected by the pandemic and encourage them to retain and rehire employees. Under the ERC, eligible businesses can claim a tax credit of up to 70% of qualified wages paid to employees, up to a maximum of $10,000 per employee per quarter.
Eligibility Criteria for the ERC
To be eligible for the ERC, businesses must meet certain criteria, including:
– Experiencing a significant decline in gross receipts compared to the same quarter in 2019
– Being subject to a full or partial suspension of operations due to government orders related to COVID-19
– Having fewer than 500 employees
Recording the ERC in QuickBooks
Once you’ve determined that your business is eligible for the ERC, the next step is to accurately record the credit in QuickBooks. Here are the steps to ensure that you’re capturing the ERC correctly:
1. Set up the ERC as a tax credit account: First, you’ll need to create a new tax credit account in QuickBooks to track the ERC. This will make it easier to report the credit on your tax return and ensure that it’s properly accounted for in your financial statements.
2. Record qualified wages: Next, you’ll need to identify the qualified wages that are eligible for the ERC. This includes wages paid to employees during the periods that the business was eligible for the credit. You’ll need to accurately record these wages in QuickBooks and allocate them to the ERC tax credit account.
3. Calculate the credit: Once you’ve identified the qualified wages, you’ll need to calculate the amount of the ERC that your business is eligible to claim. QuickBooks can help you track the eligible wages and calculate the credit amount based on the percentage and maximum limits set by the IRS.
4. Claim the credit on your tax return: Finally, you’ll need to report the ERC on your business tax return. QuickBooks can generate the necessary reports and documentation to ensure that the credit is accurately claimed and reported to the IRS.
Taking Advantage of QuickBooks Features
QuickBooks offers a range of features and tools that can help you accurately record and claim the ERC, including:
– Payroll tracking: QuickBooks can help you track and report qualified wages, making it easier to calculate the amount of the ERC that your business is eligible to claim.
– Reporting: QuickBooks can generate a variety of reports to help you track and report the ERC, including payroll reports, tax credit reports, and financial statements.
– Compliance: QuickBooks helps ensure that your business is in compliance with the ERC requirements and that you’re accurately recording and reporting the credit.
In conclusion, taking advantage of QuickBooks to accurately record the employee retention credit can help your business maximize this valuable tax credit and ensure that you’re in compliance with IRS requirements. By understanding the eligibility criteria and using the features and tools available in QuickBooks, you can make the most of this opportunity and provide financial relief for your business during these challenging times.