The employee retention tax credit (ERTC) has been extended and expanded as a result of recent COVID-19 relief legislation. This tax credit is aimed at businesses that have been negatively impacted by the pandemic, providing a refundable credit against applicable employment taxes for retaining employees.
For businesses looking to take advantage of the ERTC, there are several tips that can help maximize the benefits.
1. Understand the Eligibility Requirements
Before applying for the ERTC, it’s important to understand the eligibility requirements. Initially, this tax credit was only available to businesses that had to fully or partially suspend operations due to COVID-19 or experienced a significant decline in gross receipts. However, the recent COVID-19 relief legislation expanded the eligibility criteria, making it easier for businesses to qualify.
2. Know Your employee Qualifications
To receive the ERTC, employers must keep employees on the payroll, even if they are not working due to COVID-19-related closures or reduced business hours. Businesses that experienced a full or partial suspension of operations or a significant decline in gross receipts can receive a tax credit of up to $7,000 per employee per quarter in 2021.
3. Keep Detailed Records
In order to receive the ERTC, businesses must keep detailed records of which employees qualify for the tax credit. Eligible employees must meet certain qualification criteria, such as being employed for at least 30 days or being paid during the period they were not working due to COVID-19-related closures. Employers should keep a detailed record of these qualifications to ensure they receive the maximum tax credit available.
4. Maximize the Benefits
Business owners can maximize the benefits of the ERTC by taking a strategic approach to retaining employees. This may include implementing flexible work arrangements, such as remote work or reduced hours, to keep employees on the payroll. It’s also important to consider the financial impact of layoffs and furloughs, as these actions can limit or eliminate the tax credit benefits.
5. Hire a tax Professional
The ERTC can be a complex tax credit to navigate, and hiring a tax professional can make the process much easier. A tax professional can help businesses understand their eligibility, calculate their potential tax credit benefits, and ensure that all necessary paperwork is completed accurately and on time.
In conclusion, the ERTC can provide significant tax credit benefits to businesses impacted by the COVID-19 pandemic. By understanding the eligibility requirements, keeping detailed records, and maximizing the benefits, business owners can take advantage of this tax credit to keep their employees on the payroll and keep their businesses running. Hiring a tax professional can also help ensure that employers receive the maximum benefits available.