As a business owner, you want to do whatever you can to boost your bottom line. One way to accomplish this is by taking advantage of the employee retention tax credit (ERTC).
The ERTC was initially created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The credit is designed to help eligible employers keep their employees on payroll during the COVID-19 pandemic.
Here’s an overview of how the ERTC works and how your business can benefit from it:
What is the employee retention tax credit?
The ERTC is a tax credit that eligible employers can claim on their federal payroll tax returns. The credit is equal to 50% of qualified wages paid to eligible employees during a specific period.
To qualify for the credit, the employer must have had a significant decline in gross receipts or had to fully or partially suspend operations due to COVID-19. Additionally, the credit is only available for wages paid between March 12, 2020, and December 31, 2021.
How can the ERTC benefit my business?
The ERTC can provide significant financial benefits to eligible employers, including:
1. Increased cash flow – The credit is refundable, meaning that if the amount of the credit exceeds the employer’s payroll tax liability, the excess will be refunded to the employer. This can provide much-needed cash flow to businesses struggling during the pandemic.
2. Reduced payroll costs – The credit can reduce the amount of payroll tax that the employer needs to pay. This can help employers keep employees on payroll without incurring additional costs.
3. Enhanced employee retention – By keeping employees on payroll, businesses can maintain their workforce and avoid the costs associated with rehiring and training new staff.
4. Improved employee morale – By taking advantage of the credit and keeping employees on payroll, businesses can demonstrate their commitment to their workforce and help boost employee morale during a challenging time.
How can I claim the ERTC?
To claim the ERTC, eligible employers must file Form 941, Employer’s Quarterly Federal tax Return. The credit is claimed on Line 11c of the form.
Employers can also apply for an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
In conclusion, the employee retention tax credit can provide significant benefits to eligible employers during the COVID-19 pandemic. By taking advantage of the credit, businesses can improve their cash flow, reduce payroll costs, retain employees, and boost morale. If you haven’t already, it’s worth exploring whether your business qualifies for the ERTC and how you can claim the credit.