Employee Retention Credit Made Simple: How to Take Advantage of the CARES Act

Employee Retention Credit Made Simple: How to Take Advantage of the CARES Act

The employee retention credit (ERC) is a valuable tax credit that many businesses can take advantage of under the CARES Act. This credit is designed to help businesses keep their employees on payroll during the COVID-19 pandemic and has been extended and expanded in 2021.

The ERC is available to employers who continue to pay their employees during the pandemic, even if they are not working due to business closures or reduced operations. This credit is refundable, which means that if the amount of the credit exceeds the employer’s payroll tax liability, the excess is refunded to the employer.

To be eligible for the ERC, businesses must meet certain criteria, including experiencing a decline in gross receipts or being subject to a government shutdown order. The credit is calculated based on qualified wages paid to employees between March 13, 2020, and December 31, 2021. The maximum credit is $5,000 per employee for 2020 and $28,000 per employee for 2021.

To take advantage of the ERC, businesses need to carefully document and calculate their eligible wages and other expenses. This may involve reviewing payroll records, financial statements, and other documentation to determine the amount of the credit they are eligible for.

Many businesses have found the ERC to be a valuable source of financial relief during the pandemic. By taking advantage of this credit, businesses can keep their employees on payroll, while also benefiting from significant tax savings.

Businesses that have already claimed the Paycheck Protection Program (PPP) loans can still qualify for the ERC, as long as the same wages are not used for both programs. However, recent IRS guidance and rules have made it easier for businesses to both have had PPP funding and still be eligible for the ERC.

The ERC is a complex tax credit with many nuances that can be difficult to navigate. It’s important for businesses to work with a qualified tax professional to ensure they are maximizing the credit and complying with all IRS regulations.

In conclusion, the employee retention credit is a valuable tax credit that businesses can take advantage of under the CARES Act. By carefully documenting and calculating eligible wages, businesses can benefit from significant tax savings and keep their employees on payroll during these challenging times. It is important for businesses to consult with a tax professional to ensure they are taking full advantage of this credit and complying with all IRS regulations.