employee retention tax credit is a federal tax credit that offers financial assistance to businesses in retaining their employees during the pandemic. The credit can be availed by eligible employers who have seen a significant decline in their revenue due to COVID-19.
In light of recent events, the government has revised and expanded the employee retention tax credit. In this guide, we take a look at the requirements for claiming the credit and the eligibility criteria for employers.
Eligibility Criteria:
1. Business Location – To be eligible for the credit, the business must be located in the U.S., including Puerto Rico and the U.S. Virgin Islands.
2. Business size – The business must have experienced a decline in revenue during the pandemic, regardless of its size.
3. Operational status – The business must have been operational during the 2020-2021 calendar year.
4. employee count – Employers can claim the credit for all of their employees, regardless of the number.
5. Government assistance – Businesses that have received loans under the Paycheck Protection Program (PPP) can still claim the employee retention tax credit.
The credit works on a sliding scale, and the amount of credit that an employer can claim depends on the reduction in gross receipts.
Requirements for Claiming the credit:
1. Proof of Revenue Reductions – Employers must provide evidence of the decline in gross receipts. To qualify for the credit in 2020, the business must show a decline of more than 50% in any quarter in comparison to 2019. In 2021, the qualifying threshold has been reduced to a 20% decline in gross receipts.
2. Retained Employees – To claim the credit, the employer must have retained their employees. The credit is only available for those employees who have not been laid off, furloughed or otherwise terminated.
3. employee Wages – Employers can claim the employee retention tax credit against the wages paid to their employees. The credit covers 70% of wages paid to each employee for up to $10,000 of eligible wages per quarter. In other words, eligible employers can get up to $28,000 in credits per employee for the entire 2021 calendar year.
4. Documentation – Employers must maintain documentation of the number of employees retained and their respective wages. They should also keep records of the gross receipts and revenue reductions.
Conclusion:
The employee retention tax credit can be a useful tool for businesses struggling to retain their employees during the pandemic. The eligibility criteria are straightforward, and the credit can provide much-needed financial assistance to qualifying employers. However, it is recommended that employers consult with their accountants or tax advisors to ensure compliance with the credit requirements and claim the appropriate amount of credit.