As we step into 2021, businesses across the country are looking for ways to save money on taxes. One of the most lucrative tax credits available this year is the employee retention credit (ERC). This credit was introduced to incentivize businesses to hold onto their employees during the COVID-19 pandemic, but it has been expanded and enhanced for 2021.
The ERC is a refundable tax credit that allows qualifying employers to receive up to $7,000 per employee per quarter. To qualify, businesses must have been impacted by COVID-19 and have had a decrease in gross receipts of at least 20% in a quarter when compared to the same quarter in 2019. Employers can claim the credit on their Form 941, which is the quarterly payroll tax return.
So, how can you maximize your savings with the ERC? Here are a few tips:
1. Determine if you qualify: The first step in taking advantage of the ERC is to determine if your business qualifies. Check if you had a decrease in gross receipts of at least 20% in a quarter when compared to the same quarter in 2019. If you did, you may be eligible for the credit.
2. Review your payroll records: Ensure that you have accurate payroll records for all employees including their hours and wages. This is critical as the ERC is based on qualified wages paid, including health plan expenses.
3. Identify qualifying wages: Qualifying wages include wages paid to employees who were working during the periods when your business experienced a significant decline in gross receipts. This includes wages paid to employees who were furloughed or temporarily laid off but continued to receive healthcare benefits.
4. Claim the credit on Form 941: Eligible employers can claim the credit on their quarterly Form 941. The credit can reduce the employer’s share of Social Security taxes by up to 70% for 2021.
5. Get assistance: If you need help identifying eligible employees or calculating the credit, consider working with a tax professional. They can help you maximize your savings while ensuring that you remain compliant with tax laws.
In conclusion, the employee retention credit can provide significant tax savings for businesses impacted by COVID-19. Take the time to determine your eligibility and ensure that your payroll records are accurate. By taking advantage of this credit, you can reduce your tax liability and maintain your workforce during an uncertain time.