employee retention has been one of the major challenges faced by businesses during the pandemic. Despite the availability of government support programs, many small businesses are still struggling to retain their employees. However, as we approach the third quarter of 2021, there are several strategies that businesses can use to maximize the employee retention tax credit.
The employee retention tax credit, also known as the ERC, is a refundable tax credit that was introduced by the government in 2020 as part of the CARES Act. The ERC is available to businesses that have experienced a significant decline in revenue due to the pandemic, and it provides a tax credit of up to $5,000 per employee for wages paid between March 12, 2020, and January 1, 2022.
Here are some of the key strategies that businesses can use to maximize the employee retention tax credit in Q3 2021:
1. Evaluate eligibility criteria
The first step in maximizing the ERC is to evaluate your eligibility criteria. The ERC is available to businesses that have experienced a significant decline in revenue. In the first quarter of 2021, this decline should be over 20% compared to the same quarter in 2019. However, for Q3 2021 businesses will need to show an over 50% decline in revenue. If your business meets the eligibility criteria, you can claim the credit for each employee working a minimum of 20 hours per week.
2. Monitor qualified wages
The ERC is calculated based on the qualified wages paid to the employees. Qualified wages include all wages paid to an employee during the relevant period, including health plan contributions. In Q3 2021, businesses can receive up to $7,000 per employee per quarter, which is a significant increase compared to the previous quarters.
3. Target high turnover positions
One of the strategies businesses can use to maximize the ERC is to target high turnover positions. These positions often require a lot of training and can be expensive to fill. By offering eligible employees a retention bonus based on the ERC, businesses can encourage them to stay longer, and therefore save a lot of money in the long run.
4. Use a payroll provider
Using a payroll provider can streamline the process of claiming the ERC. Some payroll providers have introduced automated tools to help businesses monitor qualified wages, calculate the credit, and submit the necessary forms to the government. Using a payroll provider can save businesses time and money.
5. Consult with a tax professional
Finally, businesses can maximize the ERC by consulting with a tax professional. tax professionals can help businesses understand the eligibility criteria, monitor qualified wages, and calculate the credit accurately. They can also help businesses navigate the complex process of claiming the ERC, and ensure that all necessary forms are submitted on time.
In conclusion, maximizing the employee retention tax credit in Q3 2021 is important for businesses looking to save money and retain employees during the pandemic. By following these key strategies, businesses can ensure that they are maximizing the credit and taking advantage of the government support available to them.